What this calculator does
Maximum drawdown is the largest fall from a peak to a subsequent low across a period. It is the measure that corresponds most directly to how losses actually feel, because it describes the worst stretch an investor would have had to sit through.
It matters more than volatility for anyone who might need to sell. A portfolio that fell from 112 to 60 suffered a 46.4 per cent drawdown, and recovering from that requires a gain of well over 80 per cent just to get back to level.
The formula
The series is walked in order, tracking the running peak. At each point the decline from that peak is measured, and the largest such decline across the whole series is the maximum drawdown.
| Term | Meaning |
|---|---|
| Drawdown | The percentage decline from a previous peak. |
| Running peak | The highest value reached up to that point, which the drawdown is measured from. |
| Current drawdown | How far the latest value sits below the series high. |
The inputs explained
| Field | What to enter |
|---|---|
| Portfolio values in order (comma separated) | Portfolio values in chronological order, comma separated. Any consistent unit works. |
When to use it
Assessing whether a strategy is tolerable
A return figure says nothing about the worst stretch endured to achieve it.
Comparing two funds
Similar returns with very different drawdowns are very different propositions.
Setting a risk limit
Many mandates specify a maximum acceptable drawdown rather than a volatility target.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
How do different paths compare?
Three value paths with different worst declines.
| Value path | Maximum drawdown | Trough value |
|---|---|---|
| Shallow decline | 6.25% | 105.00 (point 4) |
| Moderate decline | 19.6% | 90.00 (point 5) |
| Severe decline | 46.4% | 60.00 (point 5) |
Questions
Why does recovering from a drawdown take more than the fall?
Because the gain is measured from the reduced base. A 50 per cent fall takes a 100 per cent gain to recover, and a 46.4 per cent fall takes about 86.6 per cent. This asymmetry is why large drawdowns are so costly.
Is maximum drawdown better than volatility?
It answers a different question. Volatility describes typical variation; drawdown describes the worst case actually experienced. For an investor who might have to sell at a bad moment, the drawdown is usually the more relevant figure.
Does the measurement frequency matter?
Yes, considerably. Daily data will show deeper drawdowns than monthly data on the same portfolio, because monthly snapshots miss intra-month lows. Comparisons should use the same frequency.
What is a recovery period?
The time taken to get back to the previous peak after a drawdown. It is often more informative than the depth alone, since a shallow decline that persists for years can be harder to live with than a sharp one that recovers quickly.
For downside-adjusted returns, see the Sortino ratio calculator. For volatility-adjusted returns, see the Sharpe ratio calculator.