Time-Weighted Return

The Time-weighted Rate of Return (TWR) is a measure that evaluates the performance of an investment portfolio, regardless of any associated cash flows. Rather than accounting for any added or withdrawn money during the period under consideration, TWR estimates the return on an investment portfolio by assuming that the portfolio has remained untouched throughout that period. In essence, it effectively nullifies the impact of cash flows, enabling a more accurate comparison of portfolio performance across various investment strategies and time frames.

The calculation of the TWR is based on two steps: the first step is to calculate the daily or periodic returns of the investment portfolio, and the second step is to weight these returns according to the number of days in the desired period.

It is important to note that the Time-Weighted Return (TWR) doesn't factor in cash flows associated with the investment portfolio, such as subsequent investments or withdrawals. While TWR offers value in comparing an investment portfolio's performance over time, irrespective of cash flows, its effectiveness diminishes when assessing portfolios with frequent cash flow changes. To evaluate the performance of portfolios with regular cash fluctuations, it is more appropriate to use the Internal Rate of Return (IRR).

To learn more about the differences between TWR and TIR visit https://gorila.com.br/blog/tir-cotizacao.

In GorilaCORE, we feature two endpoints that provide the Time-Weighted Return (TWR) value. One endpoint returns a historical series specific to a given portfolio, while the other provides a detailed breakdown by position. The latter endpoint also allows for comprehensive filtering by security, type, and date, granting users a tailored insight into their portfolio's performance.