PERFORMANCE MEASUREMENT

Measuring Returns

Understand how trading performance is really measured. Beyond P&L.

Your P&L number is misleading. Deposits, withdrawals, and timing distort the picture. Learn how professional-grade metrics like TWR give you an honest view of your trading decisions.

– TIME-WEIGHTED RETURN

What is time-weighted return (TWR)?

Time-weighted return is the return of a portfolio with the effect of deposits and withdrawals removed. The timeline is split at each external cash flow, the return of each sub-period is measured with capital movements excluded, and the sub-periods are chained geometrically. The result is independent of how much money you added and when, which is exactly why it is the GIPS standard for comparing managers and strategies.

TWR = (1 + r1) × (1 + r2) × … × (1 + rn) − 1

Each ri is the return of a sub-period between two cash flows.

TWR vs MWR: when to use which

The money-weighted return (MWR), an internal rate of return, does reflect the size and timing of cash flows. Use TWR to judge the strategy or the manager, since it strips out investor-driven deposits and withdrawals; use MWR to measure the actual dollar return earned by the investor. When there are no cash flows, TWR and MWR are identical.

Compute it on your own numbers with the free Time-Weighted Return calculator.

Frequently asked questions

What is time-weighted return?

It is the return of a portfolio with deposits and withdrawals neutralized, computed by chaining the return of each sub-period between cash flows. It measures performance, not how much capital you contributed.

How is TWR different from MWR (money-weighted return)?

TWR ignores the size and timing of cash flows and measures the strategy itself; MWR reflects when and how much capital was invested. Use TWR to compare managers, MWR to measure the investor's actual return.

Why use TWR instead of P&L or account growth?

Absolute P&L and raw account growth are inflated by the capital you add: a deposit lifts your equity curve even when your trading did nothing. TWR removes that distortion so the number reflects skill, not contributions.

How do you calculate time-weighted return?

Split the period at every cash flow, compute each sub-period return with capital movements excluded, then multiply them: TWR = (1 + r1)(1 + r2)…(1 + rn) − 1.