What Is Mean Return?

Mean return, in securities analysis, is the expected value, or mean, of all the likely returns of investments comprising a portfolio. A mean return is also known as an expected return and can refer to how much a stock returns on a monthly basis. In capital budgeting, a mean return is the mean value of the 澳洲幸运5官方开奖结果体彩网:probability distribution of possible returns.

Understanding Mean Return

An important component of 澳洲幸运5官方开奖结果体彩网:stock analysis is to project a stock's future worth. Investors and analysts will attempt to estimate future revenue and growth as a way of determining if a particular inv🦹estment isﷺ worth the risk involved.

Calculating the mean or expected return of a 澳洲幸运5官方开奖结果体彩网:portfolio of investments can help the investor achieve a better understanding of how specific securities can impact the portfolio as a🌃 whole. By adding and removing securities as part of the analysis process, the investor can visualize the pros and cons of each investment and build a portfolio that meets their tolerance f𒅌or risk.

Calculating Mean Return

Mean returns are calculated by adding the product of all possible return probabilities and returns and placing them against the weighted average of the sum. When calculating a mean return through the return probability formula to display portfolio return, it is often referred to as a geometric mean return since it 𓆉evokes the formu▨la for means used in geometry.

However, the simple geometric mean does not adequately capture the full scope of the mean return as used in the stock market. The geometric mean return formula is primarily used for investments that are 澳洲幸运5官方开奖结果体彩网:compounded. You can find the average mean for other simple interest accounts by simply adding the rates and dividing by the time pe🍎riods.𝄹 Alternatively, a geometric mean return formula can illustrate the rate per period of a holding period return, with the holding period return acting as the total return over multiple periods of time.

You can calculate 澳洲幸运5官方开奖结果体彩网:capital budgeting finance mean returns a little differently, but similarly.♈ The formula for capital budgeting uses maximum risk-tolerance weighted returns instead of the probabilities of the return.

Mean re🐲turns are not the same as average monthly returns, because a mean return would only reflect the average return if the time period used in the calculation was exactly a year and if all the probable weight💝s happened to be precisely the same, which is improbable. Thus, mean return is more of a broad term instead of an average monthly statistic over a period of time.

Benefits of Mean Return

Mean returns attempt to quantify the relationship between the risk of a portfolio of securities and its return. It assumes that while investors have different 澳洲幸运5官方开奖结果体彩网:risk tolerances, rational investors will always seek the maximum 澳洲幸运5官方开奖结果体彩网:rate of return (RoR) for every level💛 of acceptable risk. It is the mean, or expected, return that investors try to maximize at each level of risk.

Mean returns can also help investors more accurately visualize a proportional change in wealth over the time horizon and through analysis, showing what the rate of return could potentially continue at. While mean returns use the k🤡nown historical RoR of an investment, this does not guarantee that the 💜investment will continue to achieve the same RoR in the future.

For this reason, the prudent investor will use a mean returns analysis as just one tool in the investment decision-making process. An investor doing a stock analysis should also review the company's 澳洲幸运5官方开奖结果体彩网:financial statements and evaluate manage♋ment's strategies for future growth.