Question
What is the difference between arithmetic and geometric average return?
Arithmetic average is the simple mean of annual returns. Geometric average reflects the compound growth rate achieved across the full return sequence.
Financial
Use OmniCalc's average return calculator to compare simple average return with compound average growth across a multi-year return sequence.
Average return calculator
Use a multi-year return sequence to see how volatility changes compound growth, ending value, and total gain.
Why this result matters
An investment performance calculator focused on multi-year return sequences, volatility drag, arithmetic average return, geometric average return, and ending value. Use the tool above to enter a few clear inputs and get a practical answer you can use right away.
This average return calculator shows how a sequence of yearly gains and losses affects arithmetic average return, geometric average return, cumulative performance, and ending value. It helps users understand volatility drag rather than only seeing a single summary percentage.
Formula and method
The calculator takes a sequence of yearly returns, computes the simple arithmetic mean, then compounds the full sequence to estimate cumulative return, ending value, and the geometric average growth rate implied by the path.
Example
If an investment returns 12%, -8%, 15%, 6%, and 10% over five years, the calculator shows both the simple average and the lower compound average produced by volatility.
FAQ
Short answers to the questions people often ask before or after using the tool.
Question
Arithmetic average is the simple mean of annual returns. Geometric average reflects the compound growth rate achieved across the full return sequence.
Question
Volatility creates drag because losses and gains do not offset symmetrically when compounded over time.
Question
Use it when you want to summarize a real sequence of returns more honestly than a single simple average percentage.
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