Question 1

How is CAGR calculated?

Accepted Answer

CAGR takes the whole-period return and finds the constant yearly rate that, compounded over the number of years in the period, reproduces it. It is the compounded view of annualised return — it accounts for growth building on growth, unlike AAGR, which averages yearly returns as if each restarted from scratch. Because it is a ratio, CAGR does not depend on how much starting capital you used. $$ 	ext{CAGR} = (1 + {	ext{total return}})^{1/{	ext{years}}} - 1 $$ where: the whole-period gain, as a fraction the length of the backtest in calendar years

Question 2

How does Fincanva handle it?

Accepted Answer

A backtest's Capital Growth page opens on four tiles: Final value, Vs benchmark, Max drawdown and CAGR. Fincanva computes CAGR geometrically over the calendar years of the backtest, carried to decimal months. CAGR fills the annualised-return slot on the metrics view when Reinvest profits is on; with it off, the same slot shows AAGR, the arithmetic version. It is expressed as a percentage and can be negative when a strategy loses money over the period.

Question 3

What does CAGR mean on my result?

Accepted Answer

The CAGR on a result is the single yearly rate that would have carried that run from its starting value to its final value — it restates the whole backtest as one annualised percentage.

It is a summary of the period, not a rate any individual year achieved: a run that gained 40% one year and lost 15% the next still reports one CAGR, and no year in it looked like that number. It also says nothing about the path — two runs with the same CAGR can have had very different drawdowns along the way, which is why the metrics view shows both. Compare CAGRs only across runs of comparable length and over the same period; a 3-year run and a 20-year run annualise very different amounts of market history.

Question 4

What does it look like in practice?

Accepted Answer

A strategy grows 10,000 into 16,100 over 5 years — a total return of +61%. Its CAGR is the yearly rate that compounds to that gain: (1 + 0.61)^(1/5) − 1 ≈ 0.10, or about 10% per year. Growing at a steady 10% a year for five years does turn 10,000 into roughly 16,100, which is exactly what CAGR states in one number.

No CAGR is a rate you can expect to repeat.