What Is a Maximum Drawdown (MDD)?
A maximum drawdown (MDD) is the maximum observed loss from a peak to a trough of a portfolio, before a new peak is attained. Maximum drawdown is an indicator of downside risk over a specified time period.
It can be used both as a stand-alone measure or as an input into other metrics such as “Return over Maximum Drawdown” and the Calmar Ratio. Maximum Drawdown is expressed in percentage terms.
The Formula for Maximum Drawdown Is