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Average Return is the simple mathematical mean of a series of returns generated over a specific period (such as daily, monthly, or annually). While CAGR (Compound Annual Growth Rate) is superior for evaluating multi-year compounding, Average Return is highly useful for understanding the standard, day-to-day or month-to-month expectations of your strategy.

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The Mathematical Formula

The Average Return is calculated by summing all individual periodic returns and dividing by the total number of periods: Average Return=∑i=1nRin\text{Average Return} = \frac{\sum_{i=1}^{n} R_i}{n} (Where RiR_i represents the return in a single period, and nn represents the total number of periods).

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Average Return vs. CAGR

It is critical to understand that the Average Return will almost always appear higher than the CAGR due to the mathematical drag of volatility. If your portfolio gains 100% in Year 1 and loses 50% in Year 2:
  • Average Return: +25%
  • CAGR: 0%
The Average Return tells you how the strategy performs in a typical isolated window, while the CAGR tells you what actually happened to your baseline capital.
Where to find this in Kalpi: You can find the Average Return specifically calculated for monthly intervals under the Monthly Returns tab in your Portfolio Analysis dashboard.