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Trading and Investment Terminology

Average Return

The average return can be defined as the basic mathematical average of returns created over a particular time frame.

 

An average return is determined in a similar way as simple average is determined for any arrangement of numbers.

 

The numbers are added together into a solitary sum, and afterwards the total is divided by the quantity of the numbers in the arrangement.

 

The Formula for calculating Average Return is

 

Average Return = Sum of Returns / Number of Returns

 

There are a few return measures and approaches to compute them, yet for the arithmetic average return, we just have to take the sum of the returns and divide it by the quantity of return figures.

 

The average return shows an investor or an analyst what the returns for a security or stock have been in the previous years or what the returns of a portfolio of organizations are.

 

This isn't equivalent to an annualized return. The average return disregards compounding.

 

The simple average of returns is a simple calculation, but it is not considered a very precise one.

 

For getting more precise returns figures, investors as well as analysts likewise, oftentimes utilize the geometric mean or money weighted return.

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