what is absolute return
Absolute return is the total gain or loss on an investment over a given period, usually shown as a percentage of the original amount invested. It focuses on how much money you made or lost, not on how you performed versus a benchmark.
Quick scoop
- Formula: Current value−Initial valueInitial value×100\frac{\text{Current value}-\text{Initial value}}{\text{Initial value}}\times 100Initial valueCurrent value−Initial value×100
- Example: If you invest 100 and it becomes 120, the absolute return is 20%.
- Key point: It does not adjust for the time period, so it is different from annualized return or CAGR.
In investing
People also use “absolute return” to describe strategies that aim to make money in any market condition , not just beat an index. These strategies are usually associated with active management and can involve more complex risk.
Absolute vs relative return
- Absolute return: Measures profit or loss on its own.
- Relative return: Measures performance against a benchmark, like an index.
If you want, I can also give you a 1-line definition , a mutual fund example , or the difference between absolute return and annualized return.