CAGR and Performance Measurement

All credit to www.cssanalytics.wordpress.com/2010/12/01/cagr-and-performance-measurement/

David concludes that the Compound Average Growth Rate is an excellent target for out-of-sample optimization of non-leverage systems, partly because it rewards simplicity. However, it suffers from instability: shifting the sample dates by a few days can materially change the result due to compounding. A more robust methodology is perhaps the monthly CAGR.

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