How to use the maximum drawdown calculator
- Choose the kind of data. Pick Returns (%) if you have periodic returns, such as monthly returns from a fund factsheet or a backtest report. Pick Prices or values if you have closing prices, fund NAVs or account balances.
- Paste the series, oldest first. Commas, spaces and line breaks all work, so a column copied from a spreadsheet pastes directly. For a stock or fund, use prices adjusted for dividends and splits, or total returns, so a dividend payment does not look like a loss.
- Choose the frequency of the data. It only names the periods in the results (“Month 12”, “Week 30”); the drawdown itself does not depend on it.
The results show the maximum drawdown, when it started and bottomed, whether and when the value got back to the old peak, and the longest run of losing periods. The underwater chart plots the drawdown at every point, and the table lists the five deepest declines.
How maximum drawdown is calculated
Maximum drawdown = the lowest Drawdownt in the seriesVt is the value at point t. From returns, V0 = 1 and Vt = Vt−1 × (1 + rt). The drawdown is zero at every new high and negative below it.
The peak is the high before the deepest point, the trough is the lowest value, and the recovery is the first point at which the value is back at or above the peak. Time under water runs from the peak to the recovery, or to the end of the data if the value has not recovered.
A worked example
The example holds 48 monthly returns of a fictional balanced fund. Its highest value before the worst decline came at the end of Month 12. Over the next months it fell to a low at the end of Month 19, a maximum drawdown of -14.87%.
The fund got back to its old high in Month 28, so an investor who bought at the peak spent 16 months under water. Recovering a 14.87% loss takes a gain of 17.47%, more than the loss itself.
The longest run of losing months was 5 months in a row, compounding to -12.56%. The series contains 7 separate drawdowns in all. The second deepest, -6.49%, started late in the series and was still open at the end, which is why the current drawdown shows -2.45%.
Maximum drawdown vs the longest losing streak
The two measures answer different questions, and the example shows why they differ:
| Measure | Example | What it tells you |
|---|---|---|
| Maximum drawdown | -14.87% | The worst loss from any high to any later low, whatever happened in between |
| Longest losing streak | 5 months | How many bad periods in a row you may need to sit through |
| Loss over that streak | -12.56% | The damage done by consecutive losses alone |
| Time under water | 16 months | How long money invested at the peak stayed below its starting value |
| Current drawdown | -2.45% | How far the latest value sits below the highest one |
In the example, the losing streak ended with a positive month, but the fund kept falling afterwards and hit its low two months later. A single up period breaks a streak without ending the drawdown, so the maximum drawdown is always at least as deep as the worst run of consecutive losses.
The streak still matters for anyone running a strategy. Five or six losing months in a row can test discipline as much as one sharp fall, and traders often use the longest historical streak to set expectations before going live.
Depth and duration
Two drawdowns of the same depth can feel very different. A 15% fall recovered in three months is a blip; the same fall that takes four years to recover ties up the money and tempts investors to give up near the bottom. The underwater chart shows both dimensions at once: the depth of each dip and its width. Measures such as the Ulcer Index combine the two into a single figure.
To see how long a given drawdown should take to recover at an assumed return, with or without new contributions, use the drawdown and recovery calculator. To relate the drawdown to the return earned, use the Calmar ratio calculator.
Why your number may understate the risk
- Sample length. Maximum drawdown can only grow as more data is added. A strategy with three years of history has not been through many market regimes, and its worst decline is probably still ahead of it.
- Data frequency. Month-end values miss the lows inside the month. The account-balance example (choose Prices or values) shows a maximum drawdown of -14.21% on month-end balances; daily balances of the same account could only show the same fall or a deeper one.
- Backtests. A backtested drawdown reflects one historical path and the choices made while building the strategy. Live results often fall short of backtests, and live drawdowns can be deeper. A Monte Carlo simulation that reshuffles the returns gives a range of plausible drawdowns instead of a single figure.
- Smoothed values. Assets priced by appraisal rather than by a market, such as private real estate or private equity, show shallow drawdowns because their reported values move slowly.
What this calculator does not include
The calculator measures the series you paste and nothing else. It does not adjust for dividends, fees, taxes, deposits or withdrawals: a withdrawal from an account balance looks like a loss, so use returns or a time-weighted series for accounts with cash flows. It works on closing values, so it cannot see intraday lows. And maximum drawdown describes the past; it is not a limit on how far a portfolio can fall in the future.