Geometric mean

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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