Calculate Portfolio Return With Weights

Portfolio Return Formula:

\[ \text{Portfolio Return} = \sum (Weight_i \times Return_i) \]

Weight 1 (decimal):

Return 1 (%):

Weight 2 (decimal):

Return 2 (%):

Weight 3 (decimal):

Return 3 (%):

Portfolio Return:

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1. What Is Portfolio Return Calculation?

Portfolio return calculation is a fundamental concept in finance that measures the overall performance of an investment portfolio. It calculates the weighted average return of all assets in the portfolio based on their respective weights.

2. How Does The Calculator Work?

The calculator uses the portfolio return formula:

\[ \text{Portfolio Return} = \sum (Weight_i \times Return_i) \]

Where:

\( Weight_i \) — The proportion of the portfolio invested in asset i (expressed as a decimal)
\( Return_i \) — The return of asset i (expressed as a percentage)

Explanation: The formula calculates the weighted average return by multiplying each asset's weight by its return and summing these products across all assets in the portfolio.

3. Importance Of Portfolio Return Calculation

Details: Calculating portfolio returns is essential for performance measurement, investment decision-making, risk assessment, and comparing portfolio performance against benchmarks or other investment options.

4. Using The Calculator

Tips: Enter weights as decimals (e.g., 0.25 for 25%) and returns as percentages. You can calculate returns for up to 3 assets. The sum of weights should ideally equal 1 (100% of the portfolio).

5. Frequently Asked Questions (FAQ)

Q1: What if the weights don't sum to 1?
A: The calculator will still compute the result, but for accurate portfolio analysis, weights should sum to 1 (100% of the portfolio allocation).

Q2: Can I calculate returns for more than 3 assets?
A: This calculator supports up to 3 assets. For more complex portfolios, you would need to extend the calculation manually or use specialized software.

Q3: Should returns be entered as decimals or percentages?
A: Returns should be entered as percentages (e.g., enter 8 for 8%, not 0.08).

Q4: What time period should the returns represent?
A: The returns should represent the same time period (e.g., annual returns, quarterly returns) for accurate calculation.

Q5: Does this calculation account for compounding?
A: This is a simple weighted average calculation. For time-weighted returns that account for compounding, more complex calculations are required.