What is maximum drawdown (MDD)?

Maximum drawdown is the largest peak-to-trough decline in portfolio value over a period, expressed as a percentage. It captures the worst loss an investor would have experienced before a new high.

How do you calculate maximum drawdown?

Construct an equity curve from prices or compounded returns, track the running peak, compute each drop as (peak − value) ÷ peak, and take the maximum. Many analyses also report drawdown duration (time under water).

What inputs do I need?

Provide a series of prices or returns. If you supply returns, choose simple or log. Select the data frequency (daily, weekly, monthly, etc.) to label results and interpret durations correctly.

How should I interpret MDD?

Lower (more negative) values indicate deeper historical losses. An MDD of 0% means the series never fell below its peak. Compare MDDs alongside recovery time and volatility for a fuller risk picture.

How is MDD different from volatility?

Volatility measures dispersion around the mean, while maximum drawdown is path-dependent and focuses on the worst cumulative loss from a peak. They highlight different aspects of risk and are best used together.

Optiml Calculators | Maximum Drawdown Calculator

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