Sorry for this dumb amateur question, but looking for some help.

I’ve created an Excel line chart that tracks a portfolio’s annualized rate of return. For example, a year ago the portfolio had an annualized return of about 6.7%. Now it’s about 8%. The figure changes slightly each day and produces an interesting (to me) graph.

But I’m wondering: Is this type of chart (showing daily updates to annualized return) just nonsense?

Here’s why I suspect it is. One year after inception, if the portfolio gained 1% on a particular day, the annualized return also rose 1%. But now after three years, if the portfolio gains 1% in a day the change to the chart is maybe 1/3 of that. In other words: The sensitivity of the chart to the data is not constant. Does that invalidate the chart? And if so, is there a better way to track annualized return on a daily basis?

  • $\begingroup$ It is not "nonsense", but it does have the feature you indicate: the graph is initially quite volatile, and then it gradually "calms down" and the day to day changes become smaller and smaller. For a new investment strategy I often plot such a chart to see if the annualized return will correspond to my expectations. At some point, in my experience, it becomes less interesting to look at on a daily basis (it hardly changes), then I stop updating it. (By then I know whether the strategy is successful or not.) $\endgroup$ – Alex C Dec 1 '19 at 19:27
  • $\begingroup$ Interesting -- tnx! $\endgroup$ – Jim V Dec 2 '19 at 0:12

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