• The geometric mean is the average rate of return of a set of values, calculated using products of terms.

  • The geometric mean is most suitable for series showing sequential correlation, especially for investment portfolios.
  • Most returns in finance are correlated, including bond returns, stock returns, and market risk premiums.
  • For volatile numbers, the geometric mean provides a much more accurate measure of true returns, taking into account the accrual of interest over the years, which smooths out the average.