Different types of return calculation

CFA Level I Quant
#1

Can anybody shed a light on the difference between the following:

  1. Total return

  2. Cumulative return

  3. Holding Period Return

  4. Annualized return

This has been quite confusing for me. Thanks in advance!

#2

Total return - return that consists of capital appreciation (price) as well as income return (div or coupons)

Cumulative return (Cr)- products of period returns (1+R1)*(1+R2)*… -1=Cr

HPR = (end price-beg price)/beg price it is the simplest of all, popular in portfolio mgt, you calculate return between two point dates

Annualized return is the return adjusted for HPR equal to 365 days so if HPR was 250 days than (1+HPR)365/250 kinda annualize that as if HPR was 365 days, if HPR is 365 than formula 1+HPR)365/365 is the same number

use excel to play with this

hope this helps

R

#3

Hi Rafal,

Thank you for answering. Very helpful.

Just a follow up, is HPR the same with total return?

Thanks!

#4

Hi jcram,

In general HPR should include Total Return (price appreciation and div) there is even a formula. There might be some difference incl compounding of the returns or reinvestments.

(P1 + D - P0) / P0