This is the rate of return which, if compounded over the years covered by the performance history, would yield the cumulative gain or loss actually achieved by the trading program during that period.
Formula: ((Final VAMI / Initial VAMI) ^ (1 / number of years)) - 1 (X 100 for %)
If you don't have an even number of years, use (12 / number of months) or (4 / number of quarters)
Example: Initial VAMI = 1000, Final VAMI = 4000, No. of years = 2
Cpd. Ann. ROR = ((4000 / 1000) ^ (1/2)) -1
Cpd. Ann. ROR = 4^1/2 -1 = 2 - 1 = 1 or 100%
Note: ^ = raised to the power of
Raising a number to the 1/2 power is the same as taking the square root.