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Maximum Drawdown Calculator

Calculate maximum drawdown from portfolio value series to measure peak-to-trough decline and downside risk.

Maximum Drawdown Calculator

Calculate maximum drawdown from portfolio value series to measure peak-to-trough decline and downside risk.

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Guide

Understanding maximum drawdown and downside risk

Maximum drawdown (MDD) is the largest peak-to-trough decline in portfolio value over a period, measured as a percentage of the peak value.
MDD = (Peak Value - Trough Value) / Peak Value. Lower MDD indicates better downside protection and risk management.
MDD helps assess downside risk and psychological stress. Large drawdowns can lead to emotional decisions and strategy abandonment.
Compare MDD across strategies or time periods. A strategy with lower MDD and similar returns may be preferable for risk-averse investors.
MDD recovery time measures how long it takes to recover from the trough to the previous peak. Shorter recovery times indicate better resilience.

Frequently Asked Questions

Maximum drawdown, downside risk, and portfolio analysis

What is maximum drawdown?

Maximum drawdown (MDD) is the largest peak-to-trough decline in portfolio value over a period, expressed as a percentage of the peak value.

How is maximum drawdown calculated?

MDD = (Peak Value - Trough Value) / Peak Value. It measures the worst decline from a peak to the subsequent trough.

Why is maximum drawdown important?

MDD helps assess downside risk, psychological stress, and risk management. Large drawdowns can lead to emotional decisions and strategy abandonment.

What is a good maximum drawdown?

Lower is generally better. MDD depends on strategy and risk tolerance. Conservative strategies may target MDD <10-15%, while aggressive strategies may tolerate higher MDD for higher returns.

How does maximum drawdown relate to volatility?

Higher volatility often leads to larger drawdowns, but MDD focuses on worst-case decline rather than day-to-day volatility. MDD is a more intuitive measure of downside risk.

Can maximum drawdown be negative?

No. MDD is always positive (or zero if no decline). It represents the percentage decline from peak to trough.

How do I reduce maximum drawdown?

Reduce drawdown by diversifying, using stop losses, reducing position sizes, hedging, or using lower-volatility strategies. Risk management is key.

What is drawdown recovery time?

Drawdown recovery time is how long it takes to recover from the trough to the previous peak. Shorter recovery times indicate better resilience and faster recovery.

Should I compare strategies by maximum drawdown?

Yes, alongside returns and other metrics. Compare MDD across strategies with similar returns. A strategy with lower MDD may be preferable for risk-averse investors.

How often should I calculate maximum drawdown?

Calculate regularly (daily, weekly, or monthly) to monitor downside risk. Update when portfolio composition changes or market conditions shift significantly.

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Maximum Drawdown Calculator

Calculate maximum drawdown from portfolio value series to measure peak-to-trough decline and downside risk.

How to use Maximum Drawdown Calculator

Step-by-step guide to using the Maximum Drawdown Calculator:

Enter your values. Input the required values in the calculator form
Calculate. The calculator will automatically compute and display your results
Review results. Review the calculated results and any additional information provided

Frequently asked questions

How do I use the Maximum Drawdown Calculator?

Simply enter your values in the input fields and the calculator will automatically compute the results. The Maximum Drawdown Calculator is designed to be user-friendly and provide instant calculations.

Is the Maximum Drawdown Calculator free to use?

Yes, the Maximum Drawdown Calculator is completely free to use. No registration or payment is required.

Can I use this calculator on mobile devices?

Yes, the Maximum Drawdown Calculator is fully responsive and works perfectly on mobile phones, tablets, and desktop computers.

Are the results from Maximum Drawdown Calculator accurate?

Yes, our calculators use standard formulas and are regularly tested for accuracy. However, results should be used for informational purposes and not as a substitute for professional advice.