# How do you calculate the geometric average return?

## How do you calculate the geometric average return?

Geometric Average Return Example If you were to calculate this using the arithmetic mean return, you would add the rates together and divide them by three, giving you an average of 6%. Using this method the ending balance of 6% a year for three years would be \$5,955.08.

### Is average and geometric mean the same thing?

The geometric mean differs from the arithmetic average, or arithmetic mean, in how it is calculated because it takes into account the compounding that occurs from period to period. Because of this, investors usually consider the geometric mean a more accurate measure of returns than the arithmetic mean.

What is the geometric average return for the period?

The geometric mean return formula is used to calculate the average rate per period on an investment that is compounded over multiple periods. The geometric mean return may also be referred to as the geometric average return.

Is CAGR and geometric mean the same?

Geometric mean and compounded annual growth rate are not same but are two different concepts. Geometric mean is a measure of average in general while compounded annual growth rate is rate of growth. Of course Geometric Mean can be used to compute compounded annual growth rate in some situations.

## How do I calculate the mean return?

Calculating Mean Return Mean returns are calculated by adding the product of all possible return probabilities and returns and placing them against the weighted average of the sum.

### When should I use geometric mean?

In statistics, the geometric mean is calculated by raising the product of a series of numbers to the inverse of the total length of the series. The geometric mean is most useful when numbers in the series are not independent of each other or if numbers tend to make large fluctuations.

How geometric mean is calculated?

Basically, we multiply the numbers altogether and take the nth root of the multiplied numbers, where n is the total number of data values. For example: for a given set of two numbers such as 3 and 1, the geometric mean is equal to √(3×1) = √3 = 1.732.

Is geometric return CAGR?

Geometric mean, sometimes referred to as compounded annual growth rate or time-weighted rate of return, is the average rate of return of a set of values calculated using the products of the terms. What does that mean? Geometric mean takes several values and multiplies them together and sets them to the 1/nth power.

## Is geometric return the same as compound return?

Geometric returns (also called compound returns) involve slightly more complicated maths. The geometric mean is calculated by multiplying all the (1+ returns), taking the n-th root and subtracting the initial capital (1). The result is the same as compounding the returns across the years.

### How do I calculate mean return in Excel?

Description. Returns the average (arithmetic mean) of the arguments. For example, if the range A1:A20 contains numbers, the formula =AVERAGE(A1:A20) returns the average of those numbers.