How to Figure Trailing Returns

Trailing returns help you visualize complex sets of data.

Trailing returns help you visualize complex sets of data.

Trailing return means the gain or loss as a result of holding a financial security or any kind of valuable asset over a specific period of time. A six-month trailing return represents the gain or loss over a six-month period. For example, the six-month trailing return as of Jan. 1, 2011, will cover the previous six months, from July 1 to Dec. 31, 2010. After calculating trailing returns for a range of dates, you can represent them on a graph.

Select the time interval and date range for the trailing returns. The time interval refers to how far apart the two dates for each data point will be. If you wish to calculate six-month trailing returns, the interval is six months. The interval can be as long or short as you want. The date range represents how far back you wish to go. You can calculate trailing returns as of a single day or go back a century, provided those data are available. Too short a date range may not be representative, as the stock, bond, currency or other asset under consideration may have had a one-time jump or crash. Going back more than a decade, on the other hand, may also be counterproductive. The calculation and data gathering may be time-consuming and the behavior of the security too far in the past may not be representative of today's conditions.

Start with the first date in your date range and divide the price of the asset on that date by the price going back by an amount equal to the time interval. Assume you will calculate one year trailing returns for gold between Jan. 1, 2008, and Jan. 1, 2012. Start by dividing the price of gold on Jan. 1, 2008, by the price of gold on Jan. 1, 2007. Repeat the same for the next day, dividing the price on Jan. 2, 2008, by the price on Jan. 2, 2007. Perform this calculation for each day in your date range.

Subtract one from the result of each day and multiply the outcome by 100. You will thus end up with a percentage gain or loss for the trailing returns on each day. For example, if the price of gold was $1,000 per ounce on Jan. 1, 2008, and $1,010 on Jan. 1, 2007, the division will result in 1.01. When you subtract 1 from the result you end up with 0.01. Multiplying this figure by 100, you end up with 1 percent. In other words, the one-year trailing return of gold as of Jan. 1, 2008, is 1 percent. You can graph the results for further analysis.

About the Author

Hunkar Ozyasar is the former high-yield bond strategist for Deutsche Bank. He has been quoted in publications including "Financial Times" and the "Wall Street Journal." His book, "When Time Management Fails," is published in 12 countries while Ozyasar’s finance articles are featured on Nikkei, Japan’s premier financial news service. He holds a Master of Business Administration from Kellogg Graduate School.

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