Centre county Pennsylvania, USA | Compound annual growth rate, or CAGR, is the mean annual growth rate of an investment over a specified period of time longer than one year. It represents one of the most accurate ways to calculate and determine returns for individual assets, investment portfolios and anything that can rise or fall in value over time.CAGR is the rate of return that would be required for an investment portfolio to grow from its beginning balance to its ending balance assuming the profits were reinvested at the end of each year of the investment’s lifespan. Here is a link that describes how investment CAGR is computed:
https://www.investopedia.com/terms/c/cagr.asp
Because most investors consider investment value growth to be one of their primary investment objectives, investment portfolio multiyear trailing CAGR may be of value as a technical indicator. If we assume that CAGR is normally distributed, historical probability of portfolio CAGR may be estimated as the normal probability that best fits the portfolio's multiyear trailing CAGR. That probability may then be used as a (trailing) technical indicator.
To illustrate, consider the 6 year trailing returns for an investment portfolio consisting of equal number of shares for 3 US stock market index ETFs (SPY,DIA, and QQQ). A 6 year backtest of those trailing returns is shown in table below:
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portfolio backtest report:
securities = ['QQQ', 'SPY', 'DIA']
shares of each security = 30
initial date = 2013-01-16
current date = 2019-01-18
initial market value = 10531.50
current market value = 20362.80
annual percent returns = [-4.03, 29.08, 20.41, -6.29, 14.51, 19.18]
compound 6 year annual growth rate (CAGR) = 12.14 %
CAGR std dev (volatility) = 12.99 %
Notes:
(1) returns are not adjusted for inflation
(2) returns do not include dividend and capital gain income or its tax
(3) accumulated portfolio dividend (money market) = 1766.79
(4) data source: Quandl End-Of-Day quotes
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We now can compute the normal distribution that best fits the CAGR data, as shown in attached chart. That best fit normal distribution is a technical indicator for our investment portfolio that may be used to assist in choosing portfolio investment securities.
 (portfolio_6 CAGR probability (full).jpeg)
Attachments
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 portfolio_6 CAGR probability (full).jpeg (46KB - 117 downloads)
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portfolio CAGR as a technical indicator
