Holding period return is the total return obtained by holding an asset or portfolio of assets over a period of time, called the holding period, generally expressed as a percentage. It is especially useful for comparing returns between investments held for different periods of time. Let's see how it can help us manage our investment portfolio.
What is holding period profitability?
Holding period return is the total return obtained by holding an asset or portfolio of assets over a period of time, called the holding period, generally expressed as a percentage. Holding period return is calculated based on the total return of the asset or portfolio (revenue plus changes in value). It is especially useful for comparing the profitability of investments held for different periods of time.
What is holding period profitability for?
Holding period return is, therefore, the total return obtained by holding an asset or a portfolio of assets over a given period of time, generally expressed as a percentage. Holding period return is calculated based on the total return of the asset or portfolio (revenue plus changes in value). It is especially useful for comparing returns between investments held for different periods of time. Starting from the day following the acquisition of the security and until the day of its disposal or sale, the holding period determines the tax implications.
Holding Period Calculation Formula
Returns calculated for regular time periods, such as quarters or years, can also be converted to a holding period return. The holding period return (HPR) and annualized HPR for returns over multiple years can be calculated as follows:
Formula for calculating profitability by holding period.
Examples of Using Holding Period Returns
Calculation of an investment:
What is the return per holding period for an investor who bought a stock one year ago at €100 and received €20 in dividends during the year, if the stock is now trading at €150? —2023/05/image-63.pngCalculation example of calculating the HPR of an investment.
Investment comparison:
- An ETF A, held for three years, has revalued from €150 to €200 and generated €10 in dividends.
- ETF B, held for four years, has revalued from €300 to €420 and generated €20 in dividends.
Calculations comparing the HPR of the two ETFs
Calculation in a stock portfolio:
A stock portfolio generated the following returns in the four quarters of a year: +8%, -5%, +6%, +4%. How does it compare to the benchmark, which generated a total return of 12% over the year?
Example calculation of the HPR of a stock portfolio.