Python Data Analysis Cookbook

Computing simple and log returns

Returns measure the rate of change of (stock) prices. The advantage of using returns is that returns are dimensionless, so we can easily compare the returns of different financial securities. In contrast, the price of financial assets alone doesn't tell us much. In this chapter, we calculate daily returns because our data is sampled daily. With small adjustments, you should be able to apply the same analysis on different time frames.

In fact, there are various types of returns. For the purpose of basic analysis, we only need to know about simple (7.1) and log(arithmic) returns (7.2), as given by the following equations:

Actually these types of returns can easily be converted – from simple to log returns and back. ...