Calculate the annualized growth rate between two values.

CAGR stands for compound annual growth rate. It translates a total return over multiple years into a single annualized rate. That makes it easy to compare different investments or strategies on the same scale.

Why CAGR is useful

Raw returns can be misleading. A portfolio that doubles in two years looks impressive, but how does it compare to one that grows 50% in a single year and then stays flat? CAGR gives a clean, consistent benchmark by smoothing uneven growth into a steady rate.

This is why CAGR is widely used in:

• Portfolio reporting
• Fund performance comparisons
• Long-term planning and goal setting

The formula

The calculation is:

• CAGR = (Final ÷ Initial)^(1 ÷ Years) - 1

If the final value is 2,500 and the initial value is 1,000 over 3 years, the multiple is 2.5x and the CAGR is about 35.7%.

Example in context

Imagine two strategies:

• Strategy A returns 120% over 3 years.
• Strategy B returns 80% over 2 years.

Without annualizing, the comparison is unclear. CAGR makes it obvious which strategy delivered a stronger yearly return.

When to use CAGR

CAGR is ideal when:

• You want to compare investments with different time horizons.
• You need a single rate to communicate performance.
• You are projecting long-term goals and want a realistic benchmark.

Limitations to remember

CAGR does not capture volatility. Two investments can have the same CAGR but very different risk profiles. It also ignores interim drawdowns. That is why CAGR should be paired with volatility measures, drawdown analysis, or risk-adjusted metrics when you evaluate performance.

Tips for accurate inputs

• Use precise start and end values.
• Make sure the time period is measured in years (including partial years if needed).
• Avoid mixing deposits or withdrawals unless you adjust the values accordingly.

Key takeaways

• CAGR converts total returns into an annualized growth rate.
• It is perfect for comparing strategies across timeframes.
• It hides volatility, so use it alongside risk metrics.

Use the TradeOrbit CAGR calculator to benchmark your performance quickly and set more realistic expectations.