I need some feedback on a very basic question regarding the calculation of the portfolio return.

I have created an example of a portfolio with two assets and attempted to calculate the return:

enter image description here

I've calculated the weighted asset returns and from there I would like to calculate the cumulative portfolio return (= the return of the portfolio from Jan 1 to Feb 28). I can't just multiply them (1+r1)*(1+r2)-1, right? The -10% return in January was when the portfolio's value was only $1000 and the same relative decline in asset 1's value in February has a much smaller impact.

So do I simply weigh the returns according to the portfolio values? I've tried it and would appreciate some feedback on my calculation. Did I make a mistake? Is there an easier way to get the result?


1 Answer 1


If you calculate (1+r1)*(1+r2)-1 = 11.1435% that gives you the TWR (Time Weighted Return) which is one widely used measure of return. It treats all periods equally, no matter the assets involved.

I am not familiar with the calculation you do in B17 and C18.

If I compute the IRR (internal rate of return) for the cash flows [-1000,-20000,+25810] I get 21.65% per month, which is similar but not identical to your B20 value of 21.9%. The IRR takes into account the actual amounts invested, so is also referred to as a MWR (Money Weighted Return). TWR and MWR are the 2 main ways of computing returns on a portfolio. They do not give the same value.

If you want a money weighted method, I suggest the IRR.

  • $\begingroup$ Thank you for explaining this to me. Did you use -20000 or -20900? $\endgroup$ Commented Jun 26, 2019 at 14:11
  • 1
    $\begingroup$ I used -20000. I am looking only at the cash inflows. In the second period 20000 of Asset 2 suddenly appeared which was not there before, so I assumed the fund received 20000 in cash from investors. For Asset 1 I assumed that nothing was sold or bought and the existing shares dropped in value to 900; so no external cash flow there. This is only an assumption and we would need to know actual inflow and outflows to compute the IRR. $\endgroup$
    – Alex C
    Commented Jun 26, 2019 at 14:21

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Not the answer you're looking for? Browse other questions tagged or ask your own question.