Difference between revisions of "Geometric mean"

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(Contrasted with the arithmetic mean, which ignores compounding).
 
(Contrasted with the arithmetic mean, which ignores compounding).
  
For 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)<sup>(1/3)</sup> -1  
+
'''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 )<sup>(1/3)</sup> - 1  
  
 
= 4.9968%.
 
= 4.9968%.

Revision as of 14:57, 16 March 2015

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