CAGR

Also seen as: compound annual growth rate, annualised return, geometric return

How is CAGR calculated?

CAGR takes the whole-period return and finds the constant yearly rate that, compounded over the number of years in the period, reproduces it.

where: total return is the whole-period gain as a fraction, and years is the length of the backtest in calendar years.

What does CAGR mean on my result?

The CAGR on a result is the single yearly rate that would have carried that run from its starting value to its final value — it restates the whole backtest as one annualised percentage.

It is a summary of the period, not a rate any individual year achieved: a run that gained 40% one year and lost 15% the next still reports one CAGR, and no year in it looked like that number. It also says nothing about the path — two runs with the same CAGR can have had very different drawdowns along the way, which is why the metrics view shows both. Compare CAGRs only across runs of comparable length and over the same period; a 3-year run and a 20-year run annualise very different amounts of market history.

Defaults in Fincanva

• Fincanva computes CAGR geometrically over the calendar years of the backtest, carried to decimal months.
• CAGR fills the annualised-return slot on the metrics view when Reinvest profits is on; with it off, the same slot shows AAGR, the arithmetic version.
• It is expressed as a percentage and can be negative when a strategy loses money over the period.

Worked example

A strategy grows 10,000 into 16,100 over 5 years — a total return of +61%. Its CAGR is the yearly rate that compounds to that gain: (1 + 0.61)^(1/5) − 1 ≈ 0.10, or about 10% per year. Growing at a steady 10% a year for five years does turn 10,000 into roughly 16,100, which is exactly what CAGR states in one number.

A CAGR describes what a strategy would have done on historical data, not what it will do, and no CAGR is a rate you can expect to repeat. Fincanva provides no financial advice — see Is this financial advice?.