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Simple Return Rate in Portfolio Insights
Simple Return Rate in Portfolio Insights

How is the performance calculated?

Written by Conway
Updated over a week ago

The Portfolio Performance module in Portfolio Insights is useful to see how your portfolio is performing against benchmarks or other assets. The performance for a portfolio is calculated using the Simple Return Rate and the performance for any asset is using the percentage change in price over the selected time period. The simple return rate is the simplest way to understand your portfolio performance, calculated by dividing your net returns (profit or loss) by your net deposits.

The formula for the simple return rate is:

`1 + Simple Return Rate = (Ending Market Value) / (Beginning Market Value + Net External Cashflow)`

## Note

The simple return rate for the year might not be the product of the simple return rates of the constituent months if there are cashflows. See the examples below to better understand net cashflows and simple return rates.

## Examples

#### Example 1

When calculating the performance (simple return rate) for a portfolio for the month of May 2023, say:

• The value at the beginning of May 2023 was \$1000

• You recorded a purchase of BTC for \$200 in May

• The value at the end of May 2023 was \$1500

The Net External Cashflow here is \$200, and the Simple return rate comes out to +25% as follows:

`1 + Simple Return Rate = (\$1500) / (\$1000 + \$200) = 1.25Simple Return Rate     = 0.25`

#### Example 2

When calculating the performance (simple return rate) for a portfolio for the year 2023, say:

• The value at the beginning of 2023 was \$5000

• You recorded a purchase of TSLA for \$1000 during 2023

• You recorded a sale of AAPL for \$2000 during 2023

• The value at the end of 2023 was \$3000

The Net External Cashflow here is -\$1000 (+\$1000 from the TSLA buy and -\$2000 from the AAPL sell), and the Simple return rate comes out to -25% as follows:

`1 + Simple Return Rate = (\$3000) / (\$5000 - \$1000) = 0.75Simple Return Rate     = -0.25`

#### Example 3

When calculating the performance (simple return rate) for a portfolio for the month of May 2023, say:

• The value at the beginning of May 2023 was \$1000

• The value at the end of May 2023 was \$1500

There is no cash flow during this period because you did not perform any trades. The Simple return rate comes out to +50% as follows:

`1 + Simple Return Rate = (\$1500) / (\$1000) = 1.5Simple Return Rate     = 0.5`