Arithmetic and Geometric Averages. Lets say we have 6 year sequence of investment returns as follows: +30%, -20%, +30%, -20%, +30%, and -20%. An arithmetic average is simply the sum of all the terms (numbers) divided by the count of that sequence. The geometric average of the same numbers is quite different.

Geometric Mean vs Arithmetic Mean You are probably familiar with arithmetic mean, informally called the average of a group of numbers. You get arithmetic mean by arithmetic, or adding the numbers together and then dividing by the amount of numbers you were adding. How to Find the Geometric Mean In my question above, being exponential, data will need to be summarized using the geometric mean instead of the arithmetic one as its distribution will be asymmetric with extreme values.