Absolute Return
The total percentage gain or loss of an investment over a given period, measured without reference to any benchmark.
What is Absolute Return?
Absolute return is the simple profit or loss an investment generates over a given period, expressed as a percentage of the initial investment, with no comparison to an index or peer group. An investment with a positive absolute return made money in dollar terms regardless of what the broader market did; a negative absolute return lost money. Absolute return strategies — common in hedge funds, global macro funds, and long-short equity funds — aim to generate positive returns in all market environments by employing tools such as short selling, derivatives, and leverage rather than being limited to long-only positions. The metric is straightforward: (Ending Value ÷ Beginning Value) − 1.
Example
A long-short equity hedge fund returned +8.0% in 2022 while the S&P 500 fell 18.1%. On an absolute return basis the fund was profitable. On a relative basis it outperformed the benchmark by 26.1 percentage points. Investors focused on capital preservation care most about the positive absolute return.
Source: Investopedia — Absolute Return