Geometric Mean


DEFINITION of 'Geometric Mean'

The average of a set of products, the calculation of which is commonly used to determine the performance results of an investment or portfolio. Technically defined as "the 'n'th root product of 'n' numbers", the formula for calculating geometric mean is most easily written as:

Geometric Mean

Where 'n' represents the number of returns in the series.

The geometric mean must be used when working with percentages (which are derived from values), whereas the standard arithmetic mean will work with the values themselves.


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BREAKING DOWN 'Geometric Mean'

The main benefit to using the geometric mean is that the actual amounts invested do not need to be known; the calculation focuses entirely on the return figures themselves and presents an "apples-to-apples" comparison when looking at two investment options.

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  1. What are some examples of applications of the geometric mean?

    In statistics, the geometric mean is calculated by raising the product of series of numbers to the inverse of the total length ... Read Full Answer >>
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  3. How do you calculate the geometric mean to assess portfolio performance?

    The geometric mean is used to calculate the central tendency of a set of numbers. It is the average of the logarithmic values ... Read Full Answer >>
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