What is the formula for calculating the rolling return of a hedge fund?

The formula for calculating the rolling return of a hedge fund is based on the arithmetic average of the returns over a specified period. The correct formula is the sum of the individual returns divided by the number of periods, which aligns with the arithmetic mean.

This approach allows investors to assess the average performance of the hedge fund over time, offering a clear insight into its return profile across various periods. Rolling returns are particularly helpful in measuring consistency and evaluating performance across different market conditions, as they smooth out the volatility that might occur in shorter time frames.

While the other methods, such as geometric averaging, might serve different purposes (like assessing compounded growth over time), they do not capture the straightforward average return over the set periods, which is essential for calculating rolling returns accurately. Thus, the arithmetic average provides the most relevant measure for this specific inquiry regarding hedge funds.