Maximum Drawdown

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Largest peak-to-trough decline in cumulative wealth over a period.

Details

• category: Risk Management
• formula: MDD = max_t [Peak(t) - Trough(t)] / Peak(t)
• formula latex: \text{MDD} = \max_t \dfrac{\text{Peak}(t) - \text{Trough}(t)}{\text{Peak}(t)}
• related terms: max-drawdown, drawdown, underwater-curve

Formula

MDD = max_t [Peak(t) - Trough(t)] / Peak(t)