The holding period return (HPR) is a financial metric that indicates the amount of profit or loss an investor would have made if he had held onto his stock for a certain period of time. It’s also known as the average annual total return or average annual growth rate.

What is HPR? The holding period return definition

The holding period return is the return that an investor could expect to realize on his investment between two specific dates if he were to purchase the stock at the beginning of the holding period and hold it until the end. In other words, it’s a measure of how much you made or lost on your investment over a designated time period, based on what you paid for it.

HPR is calculated by dividing the difference between final price and initial price by initial price: HPR = (Final Price – Initial Price)/Initial Price

How to calculate the holding period return for a stock?

To calculate the holding period return for a stock, you can use the formula:

\text {Holding period} = \frac {\text {Capital gains yield}}{\text {Dividends yield}}

Once you’re familiar with the formula, here are a few simple steps to calculate Holding Period Return. First, you need to know your investment’s value at the start of your holding period (P0). Then, add in any dividends that were distributed during that time period. Finally, multiply that number by the price at which you sold your investment and subtract 1 from it. That’s it!

Why should we calculate the holding period return?

Holding period return is a useful metric for comparing different stocks, different time periods, and the same stock over multiple time periods. It’s also useful for knowing how much money you have made after your investment.

FAQ

When would you use a holding period return?

The holding period return can be realized if the asset or portfolio has been held or if an investor only anticipates the asset’s purchase.

What are the components of holding period return?

The holding period return metric consists of two different sources of income. These are interest or dividend income and capital appreciation.

Can you have a negative HPR?

This value will always be zero or greater than it, it can never be negative.