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The quantity of money earned by an investment is referred to as the absolute return. The absolute return, also known as the total return, is a metric that evaluates an asset’s or portfolio’s gain or loss in the absence of any benchmark or other standard. Returns can be positive or negative, and they may or may not be associated with other market events. The return on an asset over a given period is known as absolute return.
To calculate the return on an investment, only two values are required. They are the investment’s current value and its initial investment. The formula for calculating the absolute return is as follows:
((Current value of the investment – Initial investment) / Initial investment) * 100 = Absolute return
This metric looks at how much an asset, such as a stock or a mutual fund, has appreciated or depreciated in value over time, expressed as a percentage. Because absolute return is concerned with the return of a specific asset rather than comparing it to any other metric or benchmark, it varies from relative return.
An absolute return fund, as an investment vehicle, tries to generate positive returns by adopting investment management approaches that differ from those used by standard mutual funds. Short selling, futures, options, derivatives, arbitrage, leverage, and unconventional assets are all examples of absolute return investment techniques. Only profits or losses on the investment are included when absolute returns are examined closely from any other performance indicator.
