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Maximum Drawdown

A drawdown is any losing period during an investment. It is defined as the percent retrenchment from an equity peak to an equity valley. A drawdown starts with the beginning of an equity retrenchment and continuous until a new equity high is reached.

A drawdown encompasses both the period from the equity peak to the equity valley (length) and the time from the equity valley to the new equity high (recovery).

Maximum Drawdown (Max DD) is then the greatest cumulative percentage decline in equity. Max DD is also available to display in 3M, 6M, 12M, 24M a 36M periods.

Maximum Drawdown Formula

P = Peak value before largest drop
L = Lowest value before new high established

Non compounded Max DD
Our current method for calculating noncompounded Drawdown is “summing all monthly values in a given period”.

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