How do you know the real value of your investments? The value of almost every investment changes over time. The amount of this change depends to a large degree on how long you hold onto your investment.
Holding period return (HPR) is the total return on an asset or portfolio over a period during which it was held. It is one of the simplest and most important measures of investment performance. Holding period return (HPR) is the change in value of an investment, asset or portfolio over a particular period. Holding period return is different from an annualized return, which measures the return adjusted for a one-year period, which may be more or less than the actual holding period.
Holding period return is generally expressed as a percentage. Holding period return (HPR) is widely used for comparing returns between investments held for different periods of time.
Holding period return can be calculated as follows:
Holding period return = [ {Income + (End of Period Value – Initial Value)} / Initial Value]
Annualized holding period return i.e. Holding period return per year
Annualized Holding period return = {(1+ HPR)^(1/t) – 1}
The Returns for regular time periods such as quarters or years can be converted to a holding period return through the following formulae:
Holding period return ={ [(1+return1) * (1+return2)* (1+return3) * (1+return4)]-1}
Where,
Return1,Return2,Return3,Return4 are periodic returns
Comparing the Holding period returns of different investments allows investors to determine their highest return per investment rupee. In other words HPR offers a relative comparison of all the investments.
