When is arithmetic mean equal to geometric mean

Here we discuss the top 9 differences between Geometric Mean and Arithmetic Mean along with infographics and a comparison table. You may also have a look at the following articles —. Your email address will not be published. Save my name, email, and website in this browser for the next time I comment. Free Investment Banking Course.

Login details for this Free course will be emailed to you. Forgot Password? Differences Between Geometric and Arithmetic Mean Geometric mean is the calculation of mean or average of series of values of product which takes into account the effect of compounding and it is used for determining the performance of investment whereas arithmetic mean is the calculation of mean by sum of total of values divided by number of values.

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Geometric Mean is known as the Multiplicative Mean. These choices will be signaled globally to our partners and will not affect browsing data. We and our partners process data to: Actively scan device characteristics for identification. I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses. Financial Ratios Guide to Financial Ratios. Key Takeaways: The geometric mean is most appropriate for series that exhibit serial correlation. This is especially true for investment portfolios.

Most returns in finance are correlated, including yields on bonds, stock returns, and market risk premiums. The longer the time horizon , the more critical compounding becomes, and the more appropriate the use of the geometric mean. For volatile numbers, the geometric average provides a far more accurate measurement of the true return by taking into account year-over-year compounding.

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Partner Links. Annualized total return gives the yearly return of a fund calculated to demonstrate the rate of return necessary to achieve a cumulative return. Arithmetic Mean Definition The arithmetic mean is the sum of all the numbers in the series divided by the count of all numbers in the series.

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