# Understanding Rolling Returns: Analyze Annualized Average Returns

## What Are Rolling Returns?

Rolling returns, also known as "rolling period returns," provide a smoothed annualized average of returns over multiple periods, ending with a specified year. These metrics offer investors critical insights into performance trends by smoothing out short-term fluctuations. Unlike analyzing isolated periods, rolling returns give a comprehensive look at a fund or portfolio's performance over time, enhancing investor decisions by showcasing historical performance in a more reliable manner.

### Key Takeaways

*   Rolling returns offer insight into an investment's average annual performance over specific time periods, smoothing out short-term volatility.
*   Analyzing rolling returns helps investors understand how returns fluctuate over different intervals, providing a clearer picture than a single-period snapshot.
*   A commonly used measure is the trailing 12 months (TTM), which represents financial performance over the last 12 months.
*   Using rolling returns can uncover periods of strong and weak performance, offering valuable insights for long-term investment decisions.

## Analyzing the Mechanics of Rolling Returns

One goal of rolling returns is to highlight the frequency and magnitude of an investment's stronger and poorer periods of performance. Rolling returns can offer better insight into a fund's more comprehensive return history, not skewed by the most recent data (month or quarter-end).

For example, the five-year rolling return for 2015 includes Jan. 1, 2011, to Dec. 31, 2015. The five-year rolling return for 2016 is the [average annual return](https://www.investopedia.com/terms/a/aar.asp) for 2012 through 2016. Some [investment analysts](https://www.investopedia.com/articles/professionals/111015/investment-analyst-career-path-and-qualifications.asp) will break down a multi-year period into a series of rolling 12 month periods.

By looking at rolling returns, investors are able to understand how a fund's returns stacked up at a more particular point in time. If an investment displays a 9% annualized return over a 10-year period, this shows that if you invested on Jan. 1 in Year 0, and sold your investment on Dec. 31 at the conclusion of Year 10, you earned the equivalent of 9% a year. However, during those 10 years, returns could have varied widely.

In Year 4, the investment might go up 35%, while it could fall 17% in Year 8. Averaged out, you earned 9% per year (the "average annualized" return), yet this 9% might misrepresent the investment's performance.

Analyzing rolling returns instead could demonstrate annual performance not simply starting Jan. 1 and ending Dec. 31 but also beginning Feb. 1 and ending Jan. 31 of the next year, then March 1 through Feb. 28 of the next year, and so on. A 10-year rolling return could highlight an investment's best and worst decades in this form.

In the context of equity research and valuation, financial results for publicly traded companies are only released on a quarterly basis in securities filings in accordance with [generally accepted accounting principles](https://www.investopedia.com/terms/g/gaap.asp) (GAAP). Less frequently, firms provide monthly statements with sales volumes or key performance indicators.

## Utilizing Trailing 12 Months (TTM) for Financial Insights

A common rolling return period is [trailing 12 months](https://www.investopedia.com/terms/t/ttm.asp) (TTM). Trailing 12 months is the term for the data from the past 12 consecutive months used for reporting financial figures. A company's trailing 12 months represent its financial performance for a 12-month period; they do not typically represent a [fiscal-year ending period](https://www.investopedia.com/terms/f/fiscalyearend.asp).

Analyzing trailing 12-month (TTM) returns effectively reviews recent financial data in a yearly format. Annualized data is important because it helps neutralize the effects of [seasonality](https://www.investopedia.com/terms/s/seasonality.asp) and dilutes the impact of non-recurring abnormalities in financial results, such as temporary changes in demand, expenses, or cash flow.

TTM allows analysts to assess recent monthly or quarterly data, rather than older full-year data. TTM charts are less useful for identifying short-term changes and more useful for [forecasting](https://www.investopedia.com/terms/f/forecasting.asp).

Companies conducting internal corporate financial planning and analysis have access to detailed and very recent financial data. They use the TTM format to evaluate [key performance indicators](https://www.investopedia.com/terms/k/kpi.asp) (KPI), revenue growth, margins, [working capital management](https://www.investopedia.com/terms/w/workingcapital.asp), and other metrics that may vary seasonally or show temporary volatility.

In the context of equity research and valuation, financial results for publicly traded companies are only released on a quarterly basis in securities filings in accordance with GAAP. Less frequently, firms provide monthly statements with sales volumes or key performance indicators. [Securities and Exchange Commission](https://www.investopedia.com/terms/s/sec.asp) (SEC) filings generally display financial results on a quarterly or year-to-date basis rather than TTM.

To get a clear picture of the last year of performance, analysts and investors often need to compute their own TTM figures from current and past financial statements. Consider recent financial results from General Electric (GE). In Q1 2020, GE generated $20.5 billion in revenue versus $27 billion in Q1 2019. GE logged $95 billion of sales for the full year of 2019. By subtracting the Q1 2019 figure from the full-year 2019 figure and adding Q1 2020 revenues, you arrive at $88.5 billion in TTM revenue.

## The Bottom Line

Rolling returns provide investors with a comprehensive view of an investment's performance over various time periods, offering insights that are not skewed by the most recent data. By smoothing over multiple periods, rolling returns can highlight an investment's strengths and weaknesses across different time frames, allowing for a more nuanced analysis.

Trailing 12-month (TTM) returns offer a practical example of how recent financial data can be analyzed in an annualized format, helping to neutralize seasonal effects and temporary anomalies. Understanding rolling returns is crucial for investors to accurately gauge performance trends and make informed investment decisions over the long term.

> **Article Sources**
>
> 1.  General Electric. "[Form 10Q: For the quarterly period ending March 31, 2019](https://www.ge.com/sites/default/files/ge_webcast_10Q_04302019.pdf)." Accessed Nov. 27, 2020.
>     
> 2.  General Electric. "[Form 10Q: For the quarterly period ending March 31, 2020](https://www.ge.com/sites/default/files/ge_webcast_10Q_04292020_0.pdf)." Accessed Nov. 27, 2020.
>     
> 3.  General Electric. "[2019 Annual Report](https://www.ge.com/sites/default/files/GE_AR19_AnnualReport.pdf)." Accessed Nov. 27, 2020.