Question

How can i calculate the Relative Return?

2 Ticker ORCL MSFT NVDA 6/30/2017 50.14 68.93 144.56 5/31/17 45.39 69.84 144.35 4/30/17 44.96 68.46 104.3 3/31/17 44.61 65.86 108.93 /28/17 42.59 63.98 101.48 1/31/17 40.11 64.65 109.18 Return ORCL MSFT NVDA 10.46% -1.30% 0.15% 0.96% 2.02% 38.40% 0.78% 3.95% 4.25% 4.74% 2.94% 7.34% 6.18% -1.04% -7.05% Relative Return ORCL MSFT NVDA Total Return ORCL MSFT NVDA 25.01% 6.62% 32.41% Compound Annual Return ORCL MSFT NVDA 3.79% 1.07% 4.79% 4. 63% Average Return (geometric) ORCL MSFT NVDA 6.92% Average Return (arithmetic) ORCL MSFT NVDA 2.97% #NUM! UNUM!

Answer 1

A relative return compares return of your investment against a benchmark. Like for instance in this data sheet, you have taken 3 shares which are publicly traded. You have calculated individual returns of these shares in the second set of rows under the heading "Return". This is called the absolute return of these shares.

Now to calculate relative return you will need a benchmark against which you can compare this absolute return. Suppose S&P500 index has a return of 8% on 06/30/2017, this can be used as a benchmark for calculating relative return. So relative return for Oracle on 6/30/2017 will be Absolute return - benchmark return = 10.46 - 8% = 2.46%.

So in order to calculate relative return, you should include benchmarks in your above data sheets. S&P500 index is the most commonly used benchmark option for many investors.