Metrics / CAGR
CAGR
4 min read · Metric
Compound Annual Growth Rate — the smoothed yearly return that would have produced your final equity from your starting equity.
What it is
CAGR collapses a multi-period equity curve into a single annualised number. It ignores the path — only the start and end equity matter — which makes it a clean headline but a poor proxy for the actual experience of holding the strategy. A 12% CAGR with a 50% drawdown reads the same as a 12% CAGR with a 5% drawdown.
Formula
CAGR = (final_equity / initial_equity) ^ (365 / days_held) - 1
# Or equivalently with years:
CAGR = (1 + total_return) ^ (1 / years) - 1The exponent is the magic — it converts whatever lookback you have (3 months, 5 years, whatever) into the equivalent annual rate.
Typical ranges
- SPY long-run: 8–10% (1928–present), 10–13% (post-1980).
- Strong systematic strategies: 12–18% net of costs over multi-year samples.
- Above 25%: either a regime-specific tailwind, hidden leverage, or look-ahead bias. Investigate before believing.
- Above 40%: almost certainly an artefact. Real strategies above 40% sustained CAGR are billionaire territory and don't survive contact with capacity.
Common mistakes
- Comparing across periods. A 15% CAGR from 2010–2020 was below the SPY. The same 15% from 2000–2010 was a phenomenal result. CAGR without a benchmark for the same window is meaningless.
- Annualising short windows. A 6% return over 3 months annualises to ~26% CAGR — but that's a sample of one, not a sustainable rate.
- Confusing CAGR with average return. Arithmetic mean of yearly returns is always > CAGR by half the variance. Use CAGR for the actual compounded experience.
What the platform flags
Quantis pairs CAGR with Calmar (CAGR/MaxDD) and the benchmark CAGR for the same window — never look at CAGR in isolation. The result card's headline is intentionally net-of-costs CAGR, not gross, so the number you see is the number you'd have lived through after fees and slippage modelling.