How to Calculate a Relative Return

Calculating relative return takes some simple arithmetic.

Relative return is how an asset's return compares with a benchmark. The benchmark can be anything from how a similar asset performed to how an entire stock index performed. The choice of benchmark will depend on the investor. Relative return is beneficial because it gives an investor an idea of how the asset performed compared with another. For example, even if the asset shows a return, other assets may yield a higher return by comparison.

Instructions

1. Determine the absolute return. The absolute return of an investment is the return the investment shows for a specific period. For example, Investor A's portfolio had a gain of 15 percent during the past year.

2. Determine a benchmark return. The return can be for any benchmark an investor wants to compare the investment with. This return is usually found when researching an index or when calculating the return on a similar investment that is the benchmark. In our example, the benchmark is a stock index. This index for all of Investor A's stocks in his portfolio had an overall return of 8 percent for the year.

3. Subtract the benchmarked return from the absolute return to determine relative return. In our example, 15 percent minus 8 percent equals a relative return of 7 percent.

References

• Investopedia: Relative Return
• Money Terms: Relative Returns
• Wall Street Survivor: Absolute vs. Relative Return
• Investopedia: Absolute Return
• Investopedia: Benchmark