PerformanceAnalytics (version 0.9.7.1)

Return.annualized: calculate an annualized return for comparing instruments with different length history

Description

An average annualized return is convenient for comparing returns.

Usage

Return.annualized(Ra, scale = 12, geometric = TRUE)

Arguments

Ra

a vector, matrix, data frame, timeSeries or zoo object of asset returns

scale

number of periods in a year (daily scale = 252, monthly scale = 12, quarterly scale = 4)

geometric

generate geometric (TRUE) or simple (FALSE) returns, default TRUE

Value

• annualized return

Details

Annualized returns are useful for comparing two assets. To do so, you must scale your observations to an annual scale by raising the compound return to the number of periods in a year, and taking the root to the number of total observations: $$prod(1+R_a{)}^{\frac{scale}{n}}-1=\sqrt[n]{prod(1+R_a{)}^{scale}}-1$$

where scale is the number of periods in a year, and n is the total number of periods for which you have observations.

For simple returns (geometric=FALSE), the formula is:

$$\overline{R_a}\cdot scale$$

References

Bacon, Carl. Practical Portfolio Performance Measurement and Attribution. Wiley. 2004. p. 6

See Also

Return.cumulative,

Examples

data(edhec)
Return.annualized(edhec[,13])