Geometric mean

Geometric mean returns are calculated by taking account of compounding.

(Contrasted with the arithmetic mean, which ignores compounding).

Example

The geometric mean return calculated from sample returns of 4%, 5% and 6% is given by:

( 1.04 x 1.05 x 1.06 )^(1/3) - 1

= 4.9968%.

See also

• Arithmetic mean