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Measures the price change for the period as a percentage, exposing the gain or loss a holder experienced over the measured timeframe.
Return is the price change for the period, usually expressed as a percentage. Positive values mean gains, negative values mean losses.
Return is the price change for the period, usually expressed as a percentage. Positive values mean gains, negative values mean losses.
The calculation:
Return = (End Price - Start Price) / Start Price × 100%
Types of returns:
- Daily return: Day-over-day price change
- Period return: Change over weeks, months, or years
- Total return: Price return plus dividends reinvested
- Annualised return: Returns scaled to a yearly equivalent
Why returns matter:
- Performance measurement: Standard way to measure investment gains or losses
- Comparison: Returns allow comparison across different price levels
- Risk analysis: Volatility is measured using return distributions
- Portfolio analysis: Returns combine to show overall portfolio performance
Return considerations:
- Compounding: Multi-period returns compound, not add
- Risk-adjusted: Higher returns with higher risk may not be better
- Benchmarking: Compare returns to relevant indices
- Time horizon: Short-term returns are noisy; long-term returns reveal trends
Returns are the foundation of investment analysis. Consistent positive returns over time, especially risk-adjusted returns, indicate successful investing.