Enter the peak value and trough value of a portfolio into the calculator to determine the maximum drawdown.

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?

  1. 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.

  2. Next, determine the trough value.

    Over the same 2-year period, this portfolio reached a trough of $300,000.00.

  3. 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%