Adding up a series of numbers (two at least) and dividing the sum by their count. For example, to find the average rate of the returns of three assets in a portfolio (15%, 10%, 18%), first, the three rates of return have to be added up: 15%+10%+18%= 43%. Then the sum will be divided by the number of observations or cases (the count), 3: 43%/3= 14.33%. The average 14.33% represents the return of the whole portfolio comprising the three assets.
The arithmetic average is also known as the mean.
