:: VAMI - Monthly ROI
|
Month |
ROI |
VAMI |
|
1 |
11.9% |
$1,119 |
|
2 |
0.9% |
$1,130 |
|
3 |
6.1% |
$1,198 |
|
4 |
7.4% |
$1,287 |
|
5 |
0.7% |
$1,296 |
|
6 |
4.9% |
$1,360 |
|
7 |
6.1% |
$1,442 |
|
8 |
2.8% |
$1,483 |
|
9 |
17.2% |
$1,737 |
|
10 |
6.6% |
$1,852 |
|
11 |
0.9% |
$1,869 |
|
12 |
14.8% |
$2,145 |
|
| |
:: VAMI - Average ROI
|
Month |
ROI |
VAMI |
|
1 |
6.69% |
$1,067 |
|
2 |
6.69% |
$1,138 |
|
3 |
6.69% |
$1,214 |
|
4 |
6.69% |
$1,296 |
|
5 |
6.69% |
$1,382 |
|
6 |
6.69% |
$1,475 |
|
7 |
6.69% |
$1,573 |
|
8 |
6.69% |
$1,679 |
|
9 |
6.69% |
$1,791 |
|
10 |
6.69% |
$1,911 |
|
11 |
6.69% |
$2,039 |
|
12 |
6.69% |
$2,175 |
|
| |
:: VAMI - Monthly CROR
|
Month |
ROI |
VAMI |
|
1 |
6.57% |
$1,066 |
|
2 |
6.57% |
$1,136 |
|
3 |
6.57% |
$1,210 |
|
4 |
6.57% |
$1,290 |
|
5 |
6.57% |
$1,375 |
|
6 |
6.57% |
$1,465 |
|
7 |
6.57% |
$1,561 |
|
8 |
6.57% |
$1,664 |
|
9 |
6.57% |
$1,773 |
|
10 |
6.57% |
$1,890 |
|
11 |
6.57% |
$2,014 |
|
12 |
6.57% |
$2,145 |
|
| |
|
The compounded rate of return is a
natural extension of the VAMI analysis. It gives you the actual
monthly (or annual) rate of return necessary to achieve the current
VAMI result. In other words, it is what you actually earned per
month over the period in question.
|
| |
:: Average Rate of Return
This is distinct from the average
rate of return, which does not produce the same result. For example, take the figures in the first calculation box on the left
hand side (which once again are actual trading results). The average
ROI over the 12 month period is 6.69%.
If you were to start with
$1,000 and compound it by 6.69% every month, the end result would be
a figure of $2,175. You can see the progression towards this result
in the second calculation box. Quite clearly, this is inaccurate and doesn't
represent the rate of return that was actually achieved.
This is the limitation of averages
and the reason why it would be inaccurate to infer too much from one
month's ROI, or even returns from several months. To accurately
determine the result that was achieved, we need to know not the
average rate of return but the compound rate of return.
|
| |
:: Formula
The formula for calculating the monthly compound
rate of return, where N equals the number of months, is:
(Final VAMI / Beginning VAMI) 1/N
-1*
($2,145 / $1,000) 1/12 -1
|
| |
:: Monthly Compound ROR
This gives us a monthly compounded rate
of 6.57% instead of the average rate which was 6.69%. And if you
apply a rate of 6.57% to a starting capital of $1,000 for a period
of 12 months, the result will be $2,145. (The average for the
various service's is 5.0%.)
Once you know the Monthly Compound
Rate of Return it is then relatively simple to calculate the annual
compounded return. Using the previous figures, it gives an annual
rate of 114.5%.
|
| |
:: Formula
The formula for the annual compound
rate of return is:(1 + Monthly
CROR) 12 -1*
($2,145 / $1,000) 1/12 -1 =
114.5%
|
| |
* The Excel formula for this, where A1
is the final VAMI, A2 is the beginning VAMI and A3 is the period of
months, is: =POWER(A1/A2,1/A3)-1
**The Excel formula for this, where A1
is the Monthly CROR, is:
=POWER((1+A1),12)-1
|
|
