Lesson 4 of 10 · All lessons in this module
- What an interest rate is made of
- Holding period return
- Arithmetic and geometric mean returns
- Harmonic, trimmed and winsorized means
- Money-weighted return
- Time-weighted vs money-weighted returnVideo lesson
- Integrated cases: balance tables, money-weighted and time-weighted returns
- Annualised and continuously compounded returnsVideo lesson
- Gross, net, after-tax, real and leveraged returnsVideo lesson
- Integrated cases: from total return to what the investor keeps
Lesson 4 of 10 · 13 min
Harmonic, trimmed and winsorized means
The harmonic mean averages ratios applied to a fixed amount and damps large values; trimmed and winsorized means limit the pull of outliers.
In short
- Harmonic mean : the average for rates or ratios such as prices per share or P/Es.
- Cost averaging, investing a fixed amount each period, makes your average cost per share the harmonic mean of the prices.
- For values that are not all equal: harmonic < geometric < arithmetic. The curriculum also links them: arithmetic × harmonic = geometric².
- Trimmed mean drops a set percentage of the highest and lowest values; winsorized mean replaces them with the nearest remaining values.
- Choosing: include all values, no compounding → arithmetic; compounding → geometric; extreme outliers → harmonic, trimmed or winsorized.
Unlock this lesson free for 7 days
Create a free account to get 7 days free: every lesson, video and flashcard, and the question bank. No card needed.