What are the differences between money weighted return and time weighted return in the context of cryptocurrency?

1 answers

• priestly-daniel akpanJan 10, 2024 · 2 years ago
  Money weighted return and time weighted return are two different methods used to measure investment performance in the context of cryptocurrency. Money weighted return takes into account the timing and amount of cash flows into and out of an investment, while time weighted return focuses on the overall performance of the investment over a specific period of time. The main difference between the two lies in how they handle cash flows. Money weighted return considers the impact of cash flows on the overall return, which means that larger cash flows will have a greater impact on the return. On the other hand, time weighted return ignores the impact of cash flows and calculates the return based on the performance of the investment itself. In terms of advantages, money weighted return provides a more accurate reflection of the investor's actual return, as it takes into account the timing and amount of cash flows. However, it can be influenced by the timing of cash flows and may not accurately represent the performance of the investment. Time weighted return, on the other hand, provides a more objective measure of the investment's performance, as it focuses solely on the performance of the investment itself. It is not affected by the timing or amount of cash flows. However, it may not accurately reflect the investor's actual return if there are significant cash flows in and out of the investment. Overall, the choice between money weighted return and time weighted return depends on the investor's preferences and investment strategy.
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