---
title: "Annualization"
description: "Annualization converts a return earned over a whole period into an equivalent per-year rate, so results over different lengths of time compare on one scale."
canonical_url: "https://fincanva.com/glossary/annualization"
last_updated: "2026-09-24"
md_url: "https://fincanva.com/glossary/annualization.md"
---

# Annualization

Annualization converts a return earned over a whole period into an equivalent per-year rate, so results measured over different lengths of time can be compared on one yearly scale. A +30% gain means very different things over one year versus over ten; annualizing restates each as "per year" so the two are directly comparable. This page covers the *operation* and the conventions Fincanva applies to it, including how [volatility](/glossary/volatility) is annualized; the annualized return figure it produces for a [strategy](/glossary/strategy) is [CAGR](/glossary/cagr), or [AAGR](/glossary/aagr) when profits are not reinvested.

**Also seen as:** annualisation

## How is a return annualized?

The standard method is geometric: find the constant yearly rate that, compounded over the number of years in the period, reproduces the whole-period return.

$$
\text{annualized rate} = (1 + \text{total return})^{1/\text{years}} - 1
$$

where: [total return](/glossary/total-return) is the whole-period gain as a fraction, and years is that period's length in calendar years.

## How does Fincanva handle it?

- Fincanva annualizes a strategy's return geometrically over the calendar years of the [backtest](/glossary/backtest) — this is the [CAGR](/glossary/cagr) figure.
- With **Reinvest profits** off, the annualised-return slot instead uses the simple arithmetic form, total return ÷ years — the [AAGR](/glossary/aagr).
- Volatility is annualized separately, using the standard 252-trading-day convention (×√252), so a per-period dispersion becomes a per-year figure.

## What does it look like in practice?

A strategy gains +10% over 18 months. Because 18 months is 1.5 years, the annualized rate is (1 + 0.10)^(1/1.5) − 1 ≈ 0.066, or about 6.6% per year. Compounding 6.6% a year for a year and a half does produce roughly the same +10%, which is what annualization restates as a comparable yearly number.

*A per-year rate is not a rate you can expect to repeat.*

Fincanva is for education and illustration only. It is not personalised financial advice, and past or simulated results do not predict future ones. [Read the Terms Addendum](https://fincanva.com/terms/addendum#section-3)