Calculate Monthly Returns in Excel

How to Calculate Monthly Returns in Excel

Understanding Monthly Returns

Monthly returns provide insights into the performance of investments over each month. Calculating these returns in Excel requires a specific set of tools and formulas.

Required Tools and Sources

To begin, ensure you have access to market data, preferably from reliable financial sources like Yahoo Finance. Excel will be the primary tool for calculating and analyzing the returns.

Step-by-Step Calculation

Start by calculating daily returns using the formula (B3)/B2. This step is critical as it establishes the basis for more comprehensive monthly calculations.

Next, compile these daily returns by month. Use Excel's powerful ArrayFormula function, pairing it with text, unique, and filter functions to categorize and manage the data efficiently. This setup helps in capturing the unique months from your dataset.

Finalizing Monthly Returns

To compute the monthly returns, multiply the daily returns for each month. Then, apply the sumif function to aggregate these values by month. For instance, use the formula: =sumif(text(filter(A2:A,A2:A<>""),"MMMM"), unique(text(filter(A2:A,A2:A<>"")),"MMMM")),F2:F), which calculates the sum of monthly returns based on the unique months identified earlier.

Optimizing Returns Analysis

Utilize Excel's average and geometric functions to further analyze the monthly returns. These functions are beneficial for understanding average performance and the compounding rate of returns over time.

By following these detailed steps and utilizing the appropriate Excel functions, calculating monthly returns can be both efficient and accurate, providing valuable insights into investment performance.

How to Calculate Monthly Returns in Excel

Initial Calculation of Daily Returns

To begin calculating monthly returns in Excel, first compute the daily returns. Input your historical stock data with the closing prices in consecutive cells (e.g., column B). Use the formula =(B3/B2) to get the daily return from day to day. Place this formula in a new column adjacent to your closing prices and drag down to apply it to other cells.

Grouping Daily Returns by Month

Once daily returns are calculated, group these returns by month. Excel's ArrayFormula can efficiently perform this task. Utilize the formula =ArrayFormula(multiply(unique(text(filter(A2:A,A2:A<>""), "MMMM")), sumif(text(filter(A2:A,A2:A<>""), "MMMM"), unique(text(filter(A2:A,A2:A<>""), "MMMM")), F2:F))). This formula filters your data by month, sums the daily returns for each month, and then multiplies them to obtain the monthly return.

Applying Advanced Excel Functions

To further analyze the monthly returns, use Excel's built-in functions like AVERAGE and GEOMEAN. The AVERAGE function can determine the simple average of these monthly returns, providing a straightforward analytical perspective. Meanwhile, the GEOMEAN function is ideal for computing the geometric mean, offering insights into the compounded rate of return over multiple periods.

By following these steps and utilizing Excel’s powerful functions, you can efficiently compute and analyze the monthly returns from your investment data.

How to Calculate Monthly Returns in Excel

Example 1: Simple Price Change

Calculate the monthly return by determining the percentage increase in price from the beginning to the end of the month. Use the formula ((End Price - Start Price) / Start Price) * 100. Input these values in Excel and apply the formula to derive the percentage change.

Example 2: Adding Dividends to the Return

Include dividends received during the month. Adjust the formula to ((End Price + Dividends - Start Price) / Start Price) * 100. This formula accounts for total returns, reflecting both price changes and dividends in the calculation.

Example 3: Monthly Returns for Multiple Months

To calculate returns for several months, use the formula recursively. Define each month's start price as the previous month's end price. Apply the simple price change formula or the dividend-adjusted formula for each month individually.

Example 4: Annualizing Monthly Returns

To project a single month's return over a year, compound the return using the formula ((1 + Monthly Return)^12 - 1), where Monthly Return is input as a decimal. This calculation provides an annualized return percentage, assuming monthly returns are reinvested.

Example 5: Using Excel Functions

Utilize Excel's capabilities for faster calculations. Enter price and dividends data into a sheet, and use built-in functions like =(B2 + C2 - A2) / A2, where A2 is Start Price, B2 is End Price, and C2 is Dividends. This approach minimizes errors and streamlines computations.

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