For each investment, the historical expected return is calculated as the annualised geometric (compound) average of its daily returns over the past three years.
Daily returns are calculated as the percentage change in the investment’s price from one day to the next. For securities younger than three years, the calculation is based on the available data.
Note: When comparing investments based on their historical expected returns, ensure that you compare securities of similar age. Otherwise, the comparison may be inaccurate due to differences in the calculation periods.
Example — Using Historical Expected Returns to calculate Portfolio Expected Return (values valid as at 20/1/2025)
Consider a hypothetical portfolio consisting of the following stocks:
- US:DUOL: 34% Portfolio weight
- ASX:ANZ 33% Portfolio weight
- US:JPM 33% Portfolio weight
Note: All values accurate as at 20/1/2025
Weighted Average of US:DUOL: 34% * 49.15% = 16.711%
Weighted Average of ASX:ANZ 33% * 3.12% = 1.030%
Weighted Average of US:JPM 33% * 17.64% = 5.821%
The sum of the weighted averages 16.711% + 1.030% + 5.821% is:
Portfolio Expected Return (Historical) 23.562%
Summary
Historical returns can provide valuable insights but should be interpreted with caution, as past performance is not indicative of future results. To view the Portfolio Expected Return (CAPM) for this portfolio example, click here.
The divergence between historical and CAPM returns for this portfolio highlights the importance of considering multiple factors when assessing investment opportunities.
To learn how to select your preferred calculation method for expected return in Diversiview, click here.