Enter the peak value and trough value of a portfolio into the calculator to determine the maximum drawdown.
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Maximum Drawdown Formula
The following formula is used to calculate a maximum drawdown.
MD = (TV – PV) / PV *100
- Where MD is the maximum drawdown (%)
- TV is the trough value ($)
- PV is the peak value ($)
Maximum Drawdown Definition
What is a maximum drawdown?
A maximum drawdown is the most observed loss from peak to trough of a portfolio before a new peak is attained.
The maximum drawdown is usually expressed as a percentage of the peak value.
Example Problem
How to calculate a maximum drawdown?
- First, determine the peak value.
For this example, a portfolio goes through a series of ups and downs during a 2-year long period. During that period, the maximum peak value it reaches is $500,000.
- Next, determine the trough value.
Over the same 2-year period, this portfolio reached a trough of $300,000.00.
- Finally, calculate the maximum drawdown of this portfolio.
Using the formula above, the maximum drawdown is calculated to be:
MD = (TV – PV) / PV *100
MD = (300,000 – 500,000) / 500,000 *100
MD = -40%
