Geometric Mean

AAA

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.

INVESTOPEDIA EXPLAINS '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.

VIDEO

RELATED TERMS
  1. Arithmetic Index

    An index of securities that uses an arithmetic sum to determine ...
  2. Arithmetic Mean

    A mathematical representation of the typical value of a series ...
  3. Average Price

    1. A representative measure of a range of prices that is calculated ...
  4. Harmonic Average

    The mean of a set of positive variables. Calculated by dividing ...
  5. Mean

    The simple mathematical average of a set of two or more numbers. ...
  6. Weighted Average

    An average in which each quantity to be averaged is assigned ...
Related Articles
  1. Active Trading Fundamentals

    Simple Moving Averages Make Trends Stand Out

    The moving average is easy to calculate and, once plotted on a chart, is a powerful visual trend-spotting tool.
  2. Fundamental Analysis

    How To Calculate Your Investment Return

    How much are your investments actually returning? Find out why the method of calculation matters.
  3. Investing Basics

    Overcoming Compounding's Dark Side

    Understanding how money is made and lost over time can help you improve your returns.
  4. Active Trading Fundamentals

    Weighted Moving Averages: The Basics

    We take a closer look at the linearly weighted moving average and the exponentially smoothed moving average.
  5. Active Trading

    Moving Averages

    Discover one of the most reliable indicators in technical analysis and learn how to incorporate it into your trading routine.
  6. Options & Futures

    What are the most common momentum oscillators used in options trading?

    Read about some of the most common technical momentum oscillators that options traders use, and learn why momentum is a critical concept for options trading.
  7. Options & Futures

    How are Bollinger Bands® used in options trading?

    Use Bollinger Bands to identify volatility changes and place options trades at the right time; profit in bull or bear markets using these strategies.
  8. Options & Futures

    Stock Futures vs Stock Options

    A full analysis of when is it better to trade stock futures vs when is it better to trade options on a particular stock. A quick overview of how each of them works and why would a trader, investor, ...
  9. First time stock investors may ask, is there any way to buy insurance on stocks to prevent losses?
    Options & Futures

    Stock Safety: Top 3 Ways to Limit Your Losses

    First time stock investors may ask, is there any way to buy insurance on stocks to prevent losses?
  10. Options & Futures

    Applying Binary Options To Equity Markets

    A binary option payout depends on the outcome of a “yes” or “no” proposition, related to the difference between underlying asset price and strike price.

You May Also Like

Hot Definitions
  1. Christmas Island Dollar

    The former currency of Christmas Island, an Australian island in the Indian Ocean that was discovered on December 25, 1643. ...
  2. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  3. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  4. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  5. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  6. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
Trading Center