Squared Returns

Squared returns are the product of an asset's percentage return multiplied by itself, used in volatility modeling to emphasize larger price movements. Because squaring the return eliminates negative signs and magnifies larger values, it provides a clear signal of market intensity.

This transformation is central to the calculation of variance and is used in models like GARCH to estimate the underlying volatility. In crypto, where volatility is often characterized by sudden, large spikes, focusing on squared returns helps analysts capture the impact of these extreme events.

It is a fundamental building block for any model that seeks to quantify risk and price volatility. By analyzing the time-series of squared returns, one can identify patterns in volatility clustering.