Hello everyone,
A quick confirmation I am looking for on how TWRR is calculated: annualized vs cumulative.
Cumulative:
Usual formula from the ‘books’: TWRR = [(1+P1) x … x (Pn]-1
Pn = (End value - (Initial value+cash flow))/ (Initial value + cash flow)
Annualized
TWRR annualized =[(1+TWRR_cumulative)^1/n]-1
n = number of years/ periods
Is the interpretation correct?
Also: is it correct the following ‘impact’ of selecting a specified reporting period?
For example, If I choose YTD as a period for both Annualized and cumulative → then the code ‘forget’ of all cash flow outside the period (in YTD, basically for years before 2023).
In the case of TWRR annualized do you agree a period of less than 1 yearis not well indicative or good practice to consider?
Thanks a lot for the help!