Computing compound returns returns

spartan1

Hi i like to seek some info on calculating compound returns
lets say i have 2 stocks, Stock A and B

Stock A i invest $1000
Returns $1500
50% return

Stock B i invest $1000
Returns $2000
100% return

Is my calculation right as shown below?
Hold for 2 years then sell, therefore my calculation will be: [(1+0.5)*(1+1)]^0.5

Lets say i have a third stock call Stock C and i lost everything in this stock which means 100% loss.

Stock C i invest $200
Returns $-200
-100% return
How do i calculate this into compound returns? should it be [(1+0.5)*(1+1)*(1+(-1))]^0.5

If i use the method above by including stock C, i will get an ans of zero even when stock C investment is less than A and B.
Is my method correct or i should i use this method to calculate:

[(1500+2000+0)/(1000+1000+200)] - 1

Then take the ans above and calculate using power of 0.5

Pls advise..
thanks



Edited 1 time(s). Last edit at Sunday, February 27, 2011 at 04:33PM by vitalstrike82.

evolsteevol

hey, i don't think your logic is right. Compound returns are to calculate the returns on the SAME asset over different time periods. Not the returns on different assets over the same period.
Based on what you said, couldn't you just add them all together and work out a holding period yield for all three? (which you would then ^0.5 if you wanted to strip it back to an annualised return)?