A figure in a set of positive data that is defined as the nth root of the product of all the members of a particular set. In this case, n represents the number of members in the series. The geometric mean is commonly used when finding averages in percentages and differs slightly from the arithmetic mean. |
For example, if a particular fund positively returned 10 percent in the first year, fell 15 percent in the second year and rose again by 20 percent in the third year, the geometric mean of factors would be:
(1.10 * 0.85 * 1.20) ^1/3 = 1.0391
As a result, the investor can conclude that the fund was, on average, higher by 3.91 percent.
