InvestorQ : Is trailing returns on a stock the same as rolling returns? Which should I use to evaluate a stock; trailing returns or rolling returns?
Dia Deshpande made post

Is trailing returns on a stock the same as rolling returns? Which should I use to evaluate a stock; trailing returns or rolling returns?

Answer
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Ria Jain answered.
1 year ago


Trailing returns are about the past. They are what the stock generated as returns on a point to point basis. Rolling returns goes a step further and makes the calculation of returns more time dynamic and sensitive. It gives a better picture of your actual return irrespective of when you invested. The focus here is more on the holding period rather than on the timing of the entry and exit into an investment. To that extent, it is more timing-agnostic and is more useful from an investment and financial planning point of view. When you are told that the stock earned 20% returns in 1 year it is the return from this day to the last one year. If the stock had gone up 12% on the day after the starting point and if you had bought on the second day, then your actual returns would look much less attractive. That is where rolling returns give a better picture.

The task of calculation of rolling returns is done in two ways. Firstly, it decides on the total time period for calculation of returns. Then it works out the interval to be considered. The interval will depend on your time frame. For example if you are looking at 3 month returns then daily rolling is required. If you are looking at 1 year returns then weekly rolling return is fine. But if you are looking at 8-10 year returns then monthly rolling is fine. Check out the comparison below:

Rolling Date

Fund NAV

3-day Roll

Adjusted Value

10-07-2018

100.00

11-07-2018

102.00

12-07-2018

104.00

13-07-2018

102.00

0.020000

1.02

Geometric

14-07-2018

103.00

0.009804

1.01

Mean

15-07-2018

103.50

-0.004808

1.00

0.9992

16-07-2018

101.00

-0.009804

0.99

17-07-2018

102.00

-0.009709

0.99

18-07-2018

102.00

-0.014493

0.99

19-07-2018

101.30

0.002970

1.00

20-07-2018

102.00

0.000000

1.00

Trailing Returns

2.00%

Rolling Returns

-0.08%

The above case is pretty interesting and you need to understand why this distinction between trailing returned and rolling returns is important. For example, had you bought the stock on 10th July then your returns on 18th July would be 2%. That surely looks impressive. Instead, had you bought a day or two days later, your actual returns would either have been flat or negative. Trailing returns gives too much importance to the particular point when the stock was bought. Rolling returns solves the problem by smoothening that factor out.