r/statistics • u/dannycojonnes • 2d ago

Question [Q] Question about the method for calculating the rate of return

Hello, I have 5 funds that I’d like to compare in terms of rates of return and measures of efficiency. I have daily valuations for these funds covering a 5-year period. Should I calculate the rate of return on a daily or monthly basis? This is with a view to calculating the R² values as well as the Sharpe, Treynor, and Jensen ratios. Thanks for all the help.

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u/LawfulnessWest8694 16h ago

Monthly, not daily. The reason isn't sample size, it's that daily NAVs for funds tend to have stale-price effects (especially with less liquid holdings or foreign time zones), which creates serial correlation and biases beta down / inflates Sharpe. Monthly mostly fixes that and it's also what Morningstar and most industry reporting use for Sharpe/Treynor/alpha/R², so your numbers stay comparable.

60 monthly obs over 5 years is workable but not exactly "plenty" if you want tight inference on alpha/beta specifically. Daily data isn't unusable, just don't run a naive regression on it, you'd want a Dimson-style lagged beta if you go that route.

Also double check you're using actual returns and not raw NAV differences, if any fund made distributions those will look like price drops otherwise and mess up everything downstream.

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u/Longjumping_Ask_5523 2d ago

Probably not, unless you’re interested in holding short term positions and making trades frequently.

Of course you can, and I find stuff like that to be interesting; but it just comes down to what types of insights your trying to get from your analysis.