Holding Period Return/Yield

What Is the Holding Period Return/Yield?

Holding period return is the total return received from holding an asset or portfolio of assets throughout some undefined time frame, known as the holding period, generally communicated as a percentage. Holding period return is calculated on the basis of total returns from the asset or portfolio (income plus changes in value). It is especially helpful for contrasting returns between investments held for various periods of time.

The Formula for Holding Period Return Is

Holding Period Return (HPR) and annualized HPR for returns over numerous years can be calculated as follows:
$\begin&\textit\&\qquad=\frac{\textit+(\textit-\textit)}{\textit} \end$
Returns processed for standard time spans, for example, quarters or years can be switched over completely to a holding period return too.

Understanding Holding Period Return

Holding period return is in this manner the total return received from holding an asset or portfolio of assets over a predetermined period of time, generally communicated as a percentage. Holding period return is calculated on the basis of total returns from the asset or portfolio (income plus changes in value). It is especially helpful for contrasting returns between investments held for various periods of time.

Starting on the day after the security's acquisition and continuing until the day of its disposal or sale, the holding period determines tax suggestions. For instance, Sarah bought 100 shares of stock on Jan. 2, 2016. While determining her holding period, she starts relying on Jan. 3, 2016. The third day of every month after that considers the beginning of another month, paying little heed to how long every month contains.

On the off chance that Sarah sold her stock on Dec. 23, 2016, she would understand a short-term capital gain or capital loss on the grounds that her holding period is short of what one year. Assuming she sells her stock on Jan. 3, 2017, she would understand a long-term capital gain or loss since her holding period is over one year.

Instance of Holding Period Return/Yield

Coming up next are a few instances of working out holding period return:

1. What is the HPR for a investor, who bought a stock a year prior at $50 and received $5 in dividends throughout the year, in the event that the stock is currently trading at $60?
   $\beginHPR=\frac{5+(60-50)}{50}=30$

2. Which investment performed better: Mutual Fund X, which was held for quite a long time and appreciated from $100 to $150, giving $5 in distributions, or Mutual Fund B, which went from $200 to $320 and created $10 in distributions north of four years?
   $\begin&\textit=\frac{5+(150-100)}{100}=55$
   Note: Fund B had the higher HPR, however it was held for quite a long time, instead of the three years for which Fund X was held. Since the time spans are unique, this requires annualized HPR to be calculated, as displayed below.

3. Calculation of annualized HPR:
   $\begin&\textit\&\qquad=(0.55+1){1/3}-1=15.73$
   In this manner, notwithstanding having the lower HPR, Fund X was the prevalent investment.

4. Your stock portfolio had the accompanying returns in the four fourth of a given year: +8%, - 5%, +6%, +4%. How could it compare against the benchmark index, which had total returns of 12% throughout the year?
   $\begin&\textit\&\qquad=[(1+0.08)\times(1-0.05)\times(1+0.06)\times(1+0.04)]\&\qquad\quad-1=13.1$
   Your portfolio, in this way, beat the index by in excess of a percentage point. (In any case, the risk of the portfolio ought to likewise be compared to that of the index to assess assuming the additional return was created by facing altogether higher challenge.)

Features

• A holding period is the amount of time the investment is held by an investor, or the period between the purchase and sale of a security.
• Holding period return (or yield) is the total return earned on an investment during the time that it has been held.
• Holding period return is helpful for making like correlations between returns on investments purchased at various periods in time.