What is absolute return?
Absolute return is a type of investment return that is measured from the initial investment to the final value of the investment, regardless of the direction of the investment's performance.
How to calculate absolute return?
Absolute return is a measure of an investment's performance, which takes into account both the change in the investment's value and the time period over which that change occurred.
To calculate the absolute return, subtract the initial investment from the current investment value and then divide it by the investment's initial value and multiply by 100.
Absolute Return Formula
AR= [(Current value of investment - Initial value of investment)/ Initial value of investment]*100
Difference between Absolute and Annualised Return
Absolute return measures total gains over a specified period, taking into account all cash flows such as initial investments and subsequent returns. In contrast, annualized return considers average gains per year, over multiple years. An example might be an investment in the stock market that yielded a 4% return in its first year, followed by 8%, then 6%. The absolute return would represent 18% (4%+8%+6%), while the annualized return would take the average of those three numbers and rate growth at 6%.