Rolling Returns

A rolling return is a method of calculating the return on an investment over a period of time that changes as new data is added. For example, a 10-day rolling return would look at the returns for the past 10 days, and then add the most recent day's return to the calculation and drop the oldest day's return. This process is repeated every day, so the rolling return is always based on the most recent 10 days of data.

Rolling returns are often used to smooth out the volatility of an investment's returns. This is because a single day's return can be very volatile, but a rolling return will smooth out these fluctuations over time. This can make it easier to see the long-term trend of an investment's returns.

Rolling returns can also be used to compare the performance of different investments. This is because a rolling return will take into account the recent performance of both investments, which can give a more accurate picture of which investment is performing better.

It is important to note that rolling returns are not the same as compound returns. Compound returns take into account the effect of reinvesting dividends and interest, while rolling returns do not. This means that rolling returns can be lower than compound returns, especially over long periods of time.

Rolling returns are a useful tool for investors, but it is important to understand their limitations. They can be used to smooth out volatility and compare the performance of different investments, but they do not take into account the effect of compounding.