CAGR — Return

Annualized compounded return on the Return equity curve. Assumes reinvestment of profits.

Computed from: Equity curve
Scope: Single report
Range: Any real number
Direction: Higher is better

Basis

Computed on the close-to-close Return Series (money-weighted)

CAGR — Compound Annual Growth Rate — is the single steady yearly rate that would have turned the starting equity (your account balance) into the ending equity, if it grew by the same percentage every year. It smooths a bumpy track record into one "per year" number you can compare across records of different lengths.

How it's calculated

CAGR = (ending / beginning) ^ (1 / years) − 1

ending / beginning: final equity divided by starting equity — the growth factor, i.e. how many times your money multiplied (1.7 means it grew to 1.7× the start)
^ (1 / years): raising to the power of 1 ÷ years just spreads the total growth evenly across the years — for a 2-year record it is the square root, for 4 years the fourth root
years: calendar length of the record, in years (days ÷ 365.25)

In this product: The denominator is the record's actual calendar length, not a count of trading days. Annualizing a sub-year span is arithmetically valid but not trustworthy (see Pitfalls). On the TWR curve the growth factor is cashflow-neutral — it ignores your own deposits and withdrawals, isolating trading skill; on the Return curve, deposit/withdrawal timing can distort it, so trust the TWR figure when cash moved mid-record.

What it tells you

CAGR is the great equalizer: it lets you compare a 4-month sprint against a 5-year grind on the same per-year scale. But because only the start and end points enter the formula, CAGR is blind to everything in between — the same number can describe steady growth or a near-blow-up that clawed back. That path-blindness is the metric's main limitation (see Pitfalls), not a feature.

CAGR is the smooth compounding curve that reaches the same end; the actual path wiggled around it. Note the smooth line curves gently upward — a steady percentage rate grows the (growing) balance, so it's not a straight line.

Worked example

An account grows from $10,000 to $17,000 over 2 years:

CAGR = (17000 / 10000) ^ (1 / 2) − 1 = 1.7^0.5 − 1 ≈ 30.4%

The +70% total return becomes a steadier ~30.4% per year once compounding is accounted for. Why not just 70% ÷ 2 = 35%? Because each year grows the already-grown balance — year two's gain sits on top of year one's larger base. Letting growth build on itself ("compounding") means a slightly smaller steady rate, 30.4%, still reaches the same +70% (1.304 × 1.304 ≈ 1.70).

Pitfalls

Pitfalls & caveats

Don't annualize sub-year records. Compounding a 2-month +20% to ~170%/year is not an estimate — it's an artifact. CAGR is meaningful only once the record spans at least a year (ideally more); below that, read Total Return and track-record length instead.
Assumes you compound. CAGR bakes in reinvestment — each year's gain growing the base for the next. A fixed-lot account that never scales its position size grows roughly linearly, so its CAGR flatters the rate it would actually sustain. Match the metric to how the account is really traded.
Describes the past, doesn't predict it. CAGR is a fitted summary of one realized path. A 30% historical CAGR is not a 30% forecast — on its own it says nothing about forward returns.
Hides the path. A 30% CAGR could be smooth growth or a near-blow-up that recovered. Always read it with max drawdown and Calmar.
End-point sensitive. Because only start and end matter, a single big move near either end swings CAGR a lot.

CAGR vs Total Return

Total Return is "how much, in all" — a 4-month and a 4-year account showing +70% are not comparable. CAGR converts both to a per-year rate so they can be lined up side by side.

Compare withTotal Return