Maximum drawdown

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The maximum drawdown is a z. B. in the financial world often used key figure for investments and is one of the asymmetrical risk measures . A drawdown is a loss between a high and the following low within a certain period. There can be several of these within a period. The maximum drawdown is therefore the cumulative loss that could have occurred within a period if the investor had invested at the time of a maximum. Several normal drawdowns can also occur within the maximum drawdown. The only exception to this would be if the value of the investment property fell from a high to a low.

Seen in this way, the maximum drawdown represents the worst possible result of an investment in the period under consideration .

formula

${\displaystyle MD={\underset {i,j}{\operatorname {MAX} }}\left(\prod _{k=i}^{j}{p_{f}}_{x}\right)\forall (i,j)\in [n,1]\times [n,1]{\text{ mit }}1>j}$

example

A fund has a price low of EUR 95 in the period under review. The highest price reached before that was EUR 102. The result is (in simplified terms):

95/102 - 1 = −0.0686 = −6.86%

example

Individual evidence

1. ^ BR Fischer: Standard & Poor's Rating of Investment Funds . In: AK Achleitner, O. Everling (ed.): Fund rating . Wiesbaden 2003, ISBN 3-409-15012-9 .
2. ^ C. Bruns, F. Meyer-Bullerdiek: Professional Portfolio Management . 5th edition. Schäfer Poeschel, Stuttgart 2013, ISBN 978-3-7910-3155-2 .