More volatility in returns produces a large difference between the arithmetic averages and geometric averages.
When to use Arithmetic averages?
- When working with independent data, such as the performance of many stocks or investments over a specific time period (otherwise geometric average may be better).
- when the data set's components are all equally significant (otherwise use weighted average).
- when you want simple, rapid, and approximate information regarding the general level. The simplest average to compute is the arithmetic averages.
- while a computer is not nearby. In comparison to geometric, harmonic, or weighted average, arithmetic averages is more simpler to compute mentally or on paper.
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