The Geometric Mean
Abdulla outlines how to use and calculate the geometric average or geometric mean, also referred to as CAGR- the compounded average growth rate.
Overview
The Geometric Mean is also known as the compounded annual growth rate. The example below shows how to use the geometric mean to calculate the return on a portfolio. It is important to understand that the geometric average should be used instead of the arithmetic mean in the context of a time-series calculation.
Key learning objectives:
Understand the geometric average
Analyse the situations in which the geometric average is more appropriate than the arithmetic average
Summary
Expert
Abdulla Javeri
Abdulla’s career in the financial markets started in 1990 when he entered the trading floor of the London International Financial Futures Exchange, LIFFE, and qualified as a pit trader in equity and equity index options. In 1996, Abdulla became a trainer for regulatory qualifications and then for non-exam courses, primarily covering all major financial products.
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