Absolute Return Definition
The absolute return refers to the actual earnings or losses made by an investment, cryptocurrency or other asset over a certain period of time, regardless of the market conditions. Unlike relative returns, the absolute return doesn’t consider the performance of an index or other benchmark.
Absolute Return Key Points
- Absolute return calculates the return on an investment without comparing it to other benchmarks or market indexes.
- It’s often used in hedge funds and other managed investments to gauge performance.
- In crypto, absolute return could indicate the real growth or decrease in value of a cryptocurrency irrespective of the market trends.
- Absolute Return investments aim for positive returns in all market conditions.
What is Absolute Return?
Absolute Return refers to the profit or loss made by an investment, usually over a specific period of time. It’s important to note that unlike relative returns, absolute returns are independent of market benchmarks. Rather, it tracks the return on an investment in absolute terms.
Who uses Absolute Return?
Absolute Return is often used by investors, particularly those in hedge funds or mutual funds, as a way to measure their returns irrespective of the performance of the market. It’s used by anyone interested in the actual growth or decrease in value of their investments.
Where is Absolute Return used?
Absolute Return is used in finance and investing, across various types of investments including stocks, bonds, mutual funds, and cryptocurrencies.
When to use Absolute Return?
Investors may find Absolute Return useful when they’d like to evaluate their investment’s performance without taking into consideration the market condition or any index performance. This type of analysis is often used for non-traditional types of investment funds like hedge funds.
Why use Absolute Return?
Investors use absolute return as a means of evaluating the true profitability of their investments. They do not necessarily aim to beat the market or outperform a certain benchmark, but they aim for a positive return, irrespective of financial market trends.
How to calculate Absolute Return?
Absolute return can be calculated by subtracting the initial value of the investment from its final value, and then dividing the result by the initial value of the investment, before multiplying the resultant figure by 100 to get a percentage. This result represents the percentage growth or loss of the investment.
