Absolute returns refer to the total return an investment generates over a specific period, expressed as a percentage of the initial investment amount. Unlike relative returns, which compare performance to a benchmark, absolute returns focus solely on actual gains or losses, regardless of market conditions.
Formula for Absolute Returns:
Absolute Returns (%) = ((Final Value - Initial Value) / Initial Value) × 100
Key Features of Absolute Returns:
- Does Not Consider Time: It only shows the total return, not the annualized return.
- Easy to Calculate: Suitable for understanding straightforward investment outcomes.
- Benchmark-Free: Focuses on actual performance without comparisons.
Absolute returns are commonly used for short-term investments or by hedge funds focused on achieving positive returns regardless of market movements.