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Time-weighted return. Related Articles. Time-weighted returns is a measure of the compound rate of return of a portfolio over a stated period of time. It requires a set of sub-period returns to be calculated whenever there is an external cash flow, such as a deposit or withdrawal from the portfolio.
What is your average annual return over the two-year period? The arithmetic average is clearly +25%, while if you plug in +1 for r1 and - .5 for r2 and then calculate the geometric average according to formula (7) your geometric return is zero. Simple Answer One possibility is to calculate the simple arithmetic average of the annual returns, (8% + 12%)/2 = 10%. We suspect that it might be more complicated than that because we know that compounding is involve d whenever the âproceeds of year 1 are reinvested in year 2â.