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Choosing Calendar or Trading Days for CAGR

Article Quant Q&A · Author: User1996
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Summary

The document explains that CAGR for periods shorter or longer than an integer number of years can use either calendar-day or trading-day annualization. The key requirement is to apply the same convention consistently when calculating and comparing rates, and to state which convention was used. With a consistent conversion, the choice is a reporting convention for expressing the same elapsed time rather than a change to the underlying investment performance.

The answers suggest choosing the day count that matches the strategy and reporting purpose. Calendar days may better reflect continuously traded FX returns or the annual experience of an investor, while trading days can suit internal reporting for a product that operates on a regular market-session schedule. The material gives these as examples, not universal rules. It does not discuss how fees, cash flows, irregular holidays, or annualization conventions in a specific reporting standard should be handled, so those details require separate judgment.

Key ideas

  • CAGR can be annualized with either calendar days or trading days.
  • Use a consistent day-count convention when comparing CAGR figures.
  • Choose the convention that reflects the market schedule and purpose of the report.
  • State the chosen convention so readers can interpret the annualized rate.

Tags

StatisticsBacktestingForex
Full text
# Trading days or Calendar days for Compound Annual Growth Rate?


# Trading days or Calendar days for Compound Annual Growth Rate?












When calculating CAGR for intervals shorter than a year (or intervals that are longer than, but not integer years in length), should you use the 252 trading days or the 365.25 calendar days?

The formula I am using follows:

CAGR = ( Current Value / Initial Value ) ^ (1 / (Days passed / Days in the year)) - 1

## Answer by emcor (score 1, accepted)

https://quant.stackexchange.com/a/12922

You can use both standards, but when you apply or compare this rate the standards must be equal, and it should be noted which convention you used.

Note that 300/365 yeardays would in percentage be equal to 205/250 tradingdays, so its really just a convention that would make no difference in actual time.

## Answer by madilyn (score 3)

https://quant.stackexchange.com/a/12928

It depends on what makes more economic sense:

- If you are calculating CAGR for FX (which is traded effectively 24/7) strategy returns for instance, it would seem fair to use 365.25 calendar days.

- If you are calculating CAGR for internal reporting of trading strategy returns on a product with 5 market sessions per week, it would seem fair to use 252 calendar days.

- If you are reporting CAGR to a potential LP investor or fund allocator, they would be more interested in the CAGR they will experience at the individual tax year level, so it would also seem fair to use 365.25 calendar days.

## Answer by Prakash Tejwani (score -2)

https://quant.stackexchange.com/a/28333

[ (Current Value / Initial Value)^(365/n)-1 ] (n= no of days)

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.