The Stock Rose, but the Euro Return Disappeared
A stock rises 10 percent in dollars, yet your euro return is zero. This happens all the time, and the maths is simple once you see it.
Why this matters for beginners
Judging a foreign investment only by its local price can hide what you actually earned in your own currency. This is general education, not personal advice.
Main explanation
Starting point: stock at 100 dollars, rate at 1.00 dollar per euro, so the position is worth 100 euros.
Outcome A, no currency movement: the stock rises to 110 dollars and the rate stays 1.00. Ending euro value: 110 euros. Euro return: 10 percent.
Outcome B, the euro strengthens: the stock rises to 110 dollars, but the rate moves to 1.10 dollars per euro. Ending euro value: 110 divided by 1.10 = 100 euros. Stock return 10 percent, euro return 0 percent.
Outcome C, the euro weakens: the stock rises to 110 dollars and the rate falls to 0.90 dollars per euro. Ending euro value: 110 divided by 0.90 = 122.22 euros. Euro return: about 22.22 percent.
Never add the two percentages. Calculate the starting and ending euro values directly: divide the dollar value by the rate at each point in time.
The stock can rise while the euro return is negative, the stock can fall while a weaker euro softens the loss, both can move against you, or the rate can stay flat. All four happen in real portfolios.
Example using a real company
Harbor Cloud gains 10 percent in a year. A euro investor whose currency strengthened 10 percent against the dollar ends the year exactly where they started, in euros.
- →Stock +10 percent, euro +10 percent stronger: euro return 0 percent.
- →Stock -10 percent, euro 10 percent weaker: euro loss partly cushioned.
Common beginner mistakes
- ✕Adding the stock return and the currency move instead of recalculating euro values.
- ✕Celebrating a foreign gain without checking the exchange rate.
Key terms
- Local return
- The return in the currency the investment is priced in.
- Currency effect
- The part of your home-currency return caused by exchange-rate movement.
Key takeaways
- 01Euro return comes from euro values, not from adding percentages.
- 02A stronger euro can erase a foreign gain; a weaker euro can amplify it.
Check yourself
- 01Stock goes 100 to 110 dollars, rate stays 1.00. What is the euro return?
- 02Stock goes 100 to 110 dollars, rate moves to 1.10 dollars per euro. What is the euro return?
- 03Stock goes 100 to 110 dollars, rate falls to 0.90 dollars per euro. What is the euro return?
- 04Why not just add the stock's 10 percent and the currency's 10 percent?
Try the concept on a real company
When the Analyzer shows a US stock's gain, ask what the dollar-euro rate did over the same period.
Educational examples only. Not buy or sell recommendations.