CAGR

CAGR (compound annual growth rate) expresses the annualized rate at which an account would have grown if it compounded at a constant rate: CAGR = (end / start)^(1 / years) - 1. It converts a multi-period result into a single percentage that is easy to compare across strategies and timeframes.

Example. A strategy grows from $10,000 to $25,000 over 3 years. CAGR = (25,000 / 10,000)^(1/3) - 1 = 2.5^0.333 - 1 = approximately 35.7% per year. Reporting a flat "+150% in 3 years" hides compounding; CAGR makes the annual pace explicit.

CAGR is most useful when paired with max drawdown. A ratio of CAGR / MDD (sometimes called the Calmar ratio) rewards strategies that grow quickly without catastrophic dips. A 35% CAGR with a 70% max drawdown is very different from the same CAGR with a 15% drawdown.

CAGR says nothing about path risk or volatility, so always read it alongside a Sharpe ratio or Sortino ratio for a fuller picture. Research output only — this is not investment advice.