What is a Trailing Return?

Malcolm Tatum

Trailing returns are calculations of the total amount of profit realized from a particular investment over a specific time period. Typically, a trailing return is evaluated for a period of no less than one twelve month period. The training return also indicates the level of performance of the investment in relation to similar investments. This provides the investor with some idea of the how well the investment is performing in comparison to similar investment opportunities.

Businesswoman talking on a mobile phone
Businesswoman talking on a mobile phone

The data generated by a traveling return may be used for comparison purposes in two ways. One common application is to use the figure to identify the amount of return earned during the period and compare that cumulative return to that of similar stocks or securities. The idea is to rank the investment held along with similar investments. In the best of circumstances, the trailing return on the investment held will prove to be equal to or better than similar offerings.

A second application has to do with calculating a percentage of return rather than the actual dollar figure. Here again, the idea is to rank the performance of the investment in conjunction with similar investments available to the investor. As with the ranking of actual return, the ranking of the percentage of trailing return will hopefully demonstrate that the investment currently held is performing at least as well as its peers.

It is not uncommon for investors to approach the trailing twelve-month value by performing both calculations. There is some chance that a trailing return that is near the top ranking on actual return may not fare as well with the percentage return, and vice versa. When there is a substantial amount of variance on the ranking positions, the data may lead to the discovery of information that will help the investor determine whether to hold on to the investment or begin to diversify. From this perspective, the trailing return becomes not only an excellent way to identify actual return, but also make informed decision on future investment strategies.

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