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# Portfolio Return Definition, Calculation and Quiz

A basic concept that can quickly become very complex.
1. Define - Define the term Portfolio Return.
2. Calculation - Calculate Portfolio Return.
3. Context - Use Portfolio Return in a sentence.
4. Quiz - Test yourself. by Paul Alan Davis, CFA
Updated: February 18, 2021
The first question when faced with a portfolio return calculation is what type of data is provided. See why below.

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## Understanding the Nuances of Portfolio Return

Beginner

Portfolio Return is the calculation of return on a portfolio of stocks, bonds, cash or other assets. The calculation can be complex or easy depending on whether it is a holdings-based calculation or a returns-based calculation.

In a holdings-based calculation for each period multiply portfolio weights times the return on each asset. A simple two-stock calculation formula is provided below as an illustration.

• Portfolio Return = ABC Weight * ABC Return + XYZ Weight * XYZ Return

This type of calculation is easy to perform with Excel's `=SUMPRODUCT()` function which calculates the sum of products and can be applied to many investments. Once sub-period returns are calculated, they can be linked using arithmetic or geometric returns.

For returns-based calculations, using pooled investments with a value, like the Net Asset Value on a mutual fund, the calculation is much simpler. It's the ending value divided by the beginning value, plus an adjustment for splits and cash flows, then subtract one.

• Portfolio Return = (Ending Value / Beginning Value) - 1

Synonym: fund return

For context, recall that it is common for small investors to calculate portfolio returns over longer periods, like months, quarters or years. Here they make sub-period calculations less frequently. This is because the calculation can be time-consuming and the technical capabilities offered in costly portfolio accounting programs may not be available. Practitioners at institutional firms often calculate and link returns on a daily basis because they have the tools readily available.

### In a Sentence

Wes:  Did you ever consider that our firm's success depends on your portfolio return?
Eve:  Not until you put it that way.

### Video

Many terms have 4-5 minute videos showing a derivation and explanation. If this term had one, it would appear here.

Videos can also be accessed from our YouTube Channel.

### Video Script

If this term had a video, the script would be here.

### Quiz

Portfolio Return is normally depicted on the x-axis in a risk-return plot. | True or False?

False, the y-axis.

Linking daily returns using holdings-based calculations is preferred by institutional asset management firms. | True or False?

True

Still unclear on the calculation of Porfolio Return? Check out the Quant 101 Series of free financial modeling tutorials, and specifically Calculate Monthly Stock Returns Accurately.

### Related Terms

Our trained humans found other terms in the category performance basics.

## What's Next?

• For all Glossary terms, click Outline.
• To review the Portfolio Possibilities Curve, hit Back.
• Educational content doesn't grow on trees, click Tip.
• Next, we stick with the theme and discuss Portfolio Risk, click Next.

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