Return on Portfolio Calculator

What is Return on Portfolio?

Return on Portfolio is a measure of the overall performance of an investment portfolio. It takes into account the returns of individual assets within the portfolio and their respective weights. This metric helps investors understand how well their entire portfolio is performing, considering the diverse mix of investments they hold.

The Portfolio Return Formula

The formula for calculating portfolio return is:

\[R_p = (R_1 \times W_1) + (R_2 \times W_2) + ... + (R_n \times W_n)\]

Where:

• \(R_p\) = Portfolio return
• \(R_1, R_2, ..., R_n\) = Returns of individual assets
• \(W_1, W_2, ..., W_n\) = Weights of individual assets (in decimal form)
• \(n\) = Number of assets in the portfolio

Step-by-Step Portfolio Return Calculation

1. Identify the returns of individual assets in the portfolio.
2. Determine the weight of each asset in the portfolio (as a percentage of the total portfolio value).
3. Convert the weights to decimal form (divide by 100).
4. Multiply each asset's return by its weight.
5. Sum up all the weighted returns to get the portfolio return.

Example Calculation

Let's calculate the portfolio return for a portfolio with three assets:

• Asset 1: Return = 5%, Weight = 40%
• Asset 2: Return = 7%, Weight = 35%
• Asset 3: Return = 3%, Weight = 25%

1. Convert weights to decimal: 0.40, 0.35, 0.25
2. Multiply returns by weights:
   • Asset 1: 5% × 0.40 = 2.00%
   • Asset 2: 7% × 0.35 = 2.45%
   • Asset 3: 3% × 0.25 = 0.75%
3. Sum up weighted returns: 2.00% + 2.45% + 0.75% = 5.20%

The portfolio return is 5.20%.

Visual Representation

This chart represents the three assets in the portfolio. The height of each bar corresponds to the asset's return, while the width represents its weight in the portfolio. The red line indicates the overall portfolio return.