While absolute returns are the returns, i.e., absolute gain or loss, an investment generates over a specific period of time, relative returns are the returns, i.e., relative gain or loss, an investment generates relative to, i.e., in comparison to, a benchmark or a market index.

Relative returns are generally considered more popular than absolute returns in the market. It is that investment returns, when assessed relative to a said benchmark or market index, reflect on the gain or loss made by the investor. However, absolute returns are considered an important indicator of how much an investor made or lost in absolute terms.

While the difference between the current market value and the purchase value (as a percentage of the total investment value) is the calculated absolute return of an investment, the relative returns of an investment are calculated as the difference between the absolute return of an investment and the benchmark (market performance index) of similar investments in the market.