Drawdown Calculator
Compute max drawdown, average drawdown, drawdown duration, and recovery time from any portfolio equity curve. Useful for evaluating strategy risk before deploying capital.
Results
73 observationsAcross 73 observations, the worst peak-to-trough decline was 18.80% — meaningful — typical of long-only equity portfolios in normal markets. The portfolio is currently at or above the previous peak (no active drawdown). It spent 55% of the period below a previous high.
Frequently asked questions
Why drawdown matters more than volatility for most investors
Volatility (standard deviation of returns) is the most-cited risk metric in finance, but it is the wrong number for most real investors. Volatility treats upside and downside symmetrically — a strategy with returns of +30% and +30% has the same volatility as one with -30% and -30%, but no investor experiences these as equivalent. Drawdown, by contrast, captures the lived experience of loss: how far down did the portfolio go from its peak, and how long did it stay there?
The compounding asymmetry
Drawdowns matter more than gains because losses compound asymmetrically. A 50% drawdown requires a 100% gain to recover. A 75% drawdown requires a 300% gain. This is why protecting against large drawdowns is more valuable than chasing higher returns: a strategy with 8% expected return and 10% max drawdown will outperform a strategy with 12% expected return and 50% max drawdown over a long enough horizon, because the latter spends years recovering from each large loss.
Three drawdown statistics that matter
- Max drawdown — the worst peak-to-trough decline ever observed. Worst-case number that defines the strategy's pain ceiling.
- Average drawdown — the mean of all drawdowns. Better captures "normal" loss experience than max drawdown, which is often dominated by a single bad period.
- Recovery time — how long it took to climb back to the prior peak. Long recoveries (years) are psychologically harder to endure than deep-but-fast drawdowns.
The Calmar ratio
Calmar = annualized return / absolute max drawdown. It measures return per unit of downside risk where "downside" is defined as the worst observed loss rather than as volatility. Calmar above 0.5 is decent for trading strategies; above 1.0 is good; above 3.0 is excellent and rare. Compared to Sharpe ratio, Calmar is more sensitive to tail losses, which makes it the preferred metric for evaluating fat-tailed strategies (long-vol, crisis alpha, momentum).
What a healthy drawdown profile looks like
- Long-only equity: 30-50% max drawdown is normal historically (S&P 500 experienced 56% in 2008, 49% in 2002, 33% in 2020).
- 60/40 balanced: 20-30% max drawdown.
- Market-neutral: under 10% targeted, but with skew risk in extreme events.
- Trend-following CTAs: 15-25% max drawdown over multi-year horizons.
- Single-stock or crypto: 50-80% max drawdown is normal for individual high-vol assets.
How to improve drawdown profile
Drawdown reduction always trades off against expected return. Levers that work:
- Lower position sizing — smaller bets = smaller drawdowns. Use Kelly criterion to find a sustainable risk-per-trade fraction.
- Stop-loss rules — exit positions at predetermined loss thresholds. Reduces max drawdown but can cause whipsawing in choppy markets.
- Diversification across uncorrelated strategies — combining strategies with low correlation reduces aggregate drawdown more than the average of individual drawdowns.
- Regime filters — exit during prolonged downturns (e.g., when 200-day moving average is breached). Reduces drawdown but adds whipsaw risk.
Related calculators
For volatility-based risk metrics, see the Value at Risk calculator and Sharpe ratio calculator. For position sizing that respects drawdown tolerance, see the position size calculator. For stress-testing future drawdowns under different return/vol assumptions, see the Monte Carlo simulation calculator.