Financial Return

For a security with price at time t equal to Pt, the return at time t, Rt, is Rt = (PtPt-1)/ Pt-1.

In the context of a hedge fund portfolio, we often calculate returns relative to the assets under management (AUM) of the portfolio. In this case, we divide the profit in the base currency by the starting AUM. For example if the profit a position today was $4 and the AUM at the start of the day was $100, then the percent profit would be 4% = $4/$100.

We can also calculate returns over longer time periods using returns over shorter time periods. For example we could calculate the return over one year using daily returns. The return over the longer time period is often referred to as a cumulative return.


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