Understanding Returns

In finance, we rarely analyze absolute prices. Instead, we focus on returns - the percentage change in value over time.

Why Returns Matter More Than Prices

Calculating Simple Returns

Cumulative Returns

Annualizing Returns

Complete Returns Analysis

Practice: Calculate Returns

Key Takeaways

• Returns allow fair comparison across different price levels
• Use .pct_change() to calculate returns from prices
• Cumulative returns use compound growth: (1 + r).cumprod() - 1
• Annualize daily returns: (1 + daily)^252 - 1
• Track both return and risk (volatility) metrics

Next, we'll explore volatility and risk measurement!