Maximum Drawdown Calculator
Evaluate your investment risk by calculating the largest peak-to-trough decline.
How to use this Maximum Drawdown Calculator
- Choose your preferred mode: Simple Mode for manual values or Stock Mode for historical data analysis.
- In Simple Mode, enter the Peak Value (highest point) and Trough Value (lowest point after the peak) of your portfolio.
- In Stock Mode, enter the Ticker Symbol (e.g., AAPL) and select your desired date range.
- Click Calculate to instantly see your Maximum Drawdown (MDD) percentage.
- Review the additional insights, including absolute loss and the recovery gain required to break even.
What is Maximum Drawdown (MDD)?
Maximum Drawdown (MDD) is a key risk indicator that measures the largest price drop from a peak to a trough before a new peak is achieved. It is expressed as a percentage and helps investors understand the potential downside risk of an investment over a specific period.
Unlike volatility, which measures standard deviation, MDD specifically looks at capital preservation and the "pain" an investor might feel during a market downturn.
Why this matters for traders
- Risk Assessment: Helps you determine if a strategy's historical losses are within your risk tolerance.
- Recovery Reality: Shows how hard it is to recover from losses. A 50% loss requires a 100% gain to get back to even.
- Strategy Comparison: Allows you to compare different assets or strategies not just by return, but by risk-adjusted return.
Frequently Asked Questions
What is a good Maximum Drawdown?
"Good" is subjective and depends on the asset class. For S&P 500, historically, drawdowns of 10-20% are common, with 50% being rare (2008). For aggressive strategies, 30% might be acceptable, while conservative portfolios aim for less than 5-10%.
How do I calculate MDD?
The formula is: MDD = (Trough Value - Peak Value) / Peak Value. It is always a negative value or zero, though typically expressed as a positive percentage drop (e.g., 20% drawdown).
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