Whenever we talk about the "average" return of an investment, what that means is: "If you had put the money in a savings account instead of the investment, what interest rate would the savings account have needed to yield for you to end up with the same amount of money as you did from the investment?" This is also known as "

compound annual growth rate", which would be a more precise term to use than "average".

So let's consider this example:

Say I invest $1,000 and get a +20% gain that year, so I now have $1,200.

Then the market drops -20% the next year. I now have $960.

You started with $1000 and two years later you ended up with $960. Assuming annual compounding (unlike most actual savings accounts), the equivalent savings account would have had an interest rate `r` satisfying `1000*(1+r)**2=960`. Solving for `r` gives you `r = (960/1000)**(1/2) - 1 ≈ -2%` (to one significant figure).

So we would say the average return of this investment was approximately -2%. In other words, you lost about 2% per year.

The way you have calculated average in your post is never used because it does not make sense.