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What's the right way to take a series of returns and convert it into a continuous index? Let's say I want to show the performance of a strategy starting from 1, and adding on returns so that I get an equity curve, should I be using cumsum(1 + returns) or cumprod(1 + returns)?

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I voted for a close, since this kind of question apprears to be too simple. – Owe Jessen Mar 27 '11 at 18:53
I agree... voting to close – Joshua Chance Mar 27 '11 at 19:20
I'm not sure what you mean by a "continuous index"; surely you want "cumulative returns". Dollar P&L is added whereas compounded interest is multiplied. You have the latter. Now I'm going to close this for being too basic. – chrisaycock♦ Mar 27 '11 at 19:30

closed as off topic by Owe Jessen, Joshua Chance, chrisaycock♦ Mar 27 '11 at 19:30

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1 Answer

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It should be cumprod. Say you have an index of 0.7, and a daily return of -10%. The new index should be 0.63, not 0.6.

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