I have two values which represents the profit and loss (PnL) calculated within a time period:
pnlAbsolute= 7$ (within 5 days)pnlPercent= 0.2% (within 8 days)
Now, I want to calculate its annualized version:
Calculate annualized pnlAbsolute (annualized income):
annualizedPnlAbsolute = 7$ * (365days / 5days) = 511$
Calculate annualized pnlPercent (annualized return):
annualizedPnlPercent = (1 + 0.2%/100) pow (365days / 8days) - 1 = 0.0954 = 9,54%
Both formulas are correct, however which one is more accurate? I guess, annualiedPnlAbsolute is a rougher estimate than annualizedPnlPercent. Am I right?
EDIT:
The main aim I want to achieve by annualizing is, to compare multiple annualized values. I must annualize it because the values can be in different time periods. For example, I have pnlAbsolute1 (or pnlRelative1) achieved in 3 days, pnlAbsolute2 (or pnlRelative2) achieved in 5 days, etc. The main question is: Is it better to compare by annualizedPnlAbsolute or compare by annualizedPnlRelative.
Which annualized version is more suitable for comparisons - the annualizedPnlAbsolute or the annualizedPnlRelative?