Drawdown

There are a surprisingly large number of appraisal measures based on drawdown and related concepts. As its name suggests, the average drawdown is the average continuous negative return over an investment period, three years being a typical period of measurement. Maximum drawdown represents the maximum loss an investor could have suffered in the fund buying at the highest point and selling at the lowest. The recovery time may be measured from the peak or high-water mark or may also be measured from the subsequent valley or low-water mark. The Sterling ratio replaces maximum drawdown in the Calmar ratio with the average drawdown over the period of analysis. Drawdown statistics can be calculated on the basis of active drawdown, relative returns underperforming the benchmark rather than just negative absolute returns.