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Difference Between Simple Return and Log Return

Simple returns are not time additive but provide an aggregate portfolio return, while log returns are time additive but do not directly provide a weighted portfolio return. The document provides an example comparing simple and log returns for a portfolio over 5 periods, showing that simple returns yield a higher weighted portfolio return that is not time additive, while log returns provide a lower but time additive weighted return.

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Khushboo Raj
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23 views

Difference Between Simple Return and Log Return

Simple returns are not time additive but provide an aggregate portfolio return, while log returns are time additive but do not directly provide a weighted portfolio return. The document provides an example comparing simple and log returns for a portfolio over 5 periods, showing that simple returns yield a higher weighted portfolio return that is not time additive, while log returns provide a lower but time additive weighted return.

Uploaded by

Khushboo Raj
Copyright
© © All Rights Reserved
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Difference between Simple return and Log Return

S.NO Stocks P1 P2 P3 P4 P5
1 Tata Steel 326 346 368 425 468
2 Titan 200 220 242 258 285
3 ICICI 320 330 342 350 380
4 SBI 220 225 275 310 362
5 TVS 245 252 265 278 320
Portfolio 1311 1373 1492 1621 1815

Simple Returns Not time additive but aggregate portfolio return

Asset Weight P2 P3 P4 P5 R(5/0) Add


Tata steel 25% 6.13% 6.36% 15.49% 10.12% 43.56% 38.10%
Titan 15% 10.00% 10.00% 6.61% 10.47% 42.50% 37.08%
ICICI 24% 3.13% 3.64% 2.34% 8.57% 18.75% 17.67%
SBI 17% 2.27% 22.22% 12.73% 16.77% 64.55% 54.00%
TVS 19% 2.86% 5.16% 4.91% 15.11% 30.61% 28.03%
Portfolio 100% 4.73% 8.67% 8.65% 11.97% 38.44% 34.01%
Weighted Return 4.73% 8.69% 8.48% 11.84% 38.44% 33.74%

Log return
Asset Weight P2 P3 P4 P5 R(5/0) Add
Tata steel 25% 5.95% 6.16% 14.40% 9.64% 36.16% 36.16%
Titan 15% 9.53% 9.53% 6.40% 9.95% 35.42% 35.42%
ICICI 24% 3.08% 3.57% 2.31% 8.22% 17.19% 17.19%
SBI 17% 2.25% 20.07% 11.98% 15.51% 49.80% 49.80%
TVS 19% 2.82% 5.03% 4.79% 14.07% 26.71% 26.71%
Portfolio 100% 4.62% 8.31% 8.29% 11.30% 32.53% 32.53%
Weighted Return 4.59% 8.17% 8.03% 11.15% 31.94% 31.94%
Basic Concept
Log Return: Time additive but does not aggregate portfolio
weighted return
Simple Return: Not time additive but aggregates portfolio
return

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