Rate of Return

Daily return is the percentage return of an investment if we bought on the open and sold on the close each day over the whole period of the data series.

Rate of Return

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Daily opening price can be substituted by yesterday’s closing price. Returns can be estimated for different frequencies like weekly returns, monthly returns, quarterly returns semiannual and annual returns. To calculate weekly returns the closing price of the week and the opening price of the week is required.

Over short time periods like daily periods, percentage returns are approximated by log returns.

Log Return

Adjusted Close price may be used instead of Close price for calculating daily returns. The adjusted close price accounts for dividends and stock splits.

Annualized Return can be calculated from daily returns by using multiplication factor.

The benefit of using returns instead of prices is normalization that is measuring all variables in a comparable metric. This enables evaluation of relationships between variables despite originating from price series of unequal values.