The decline from a portfolio or asset peak to a subsequent trough, commonly expressed as a percentage.
How it works
Drawdown measures the decline from a prior peak to a later value before a new peak is reached. It helps describe the path and recovery burden that a simple return figure can hide.
Example
A fall from 100 to 80 is a 20% drawdown; recovering from 80 to 100 requires a 25% gain.
Limitations
The result depends on the selected history and valuation frequency. A completed historical drawdown does not bound future losses.
Evidence LedgerHow this insight was built
Human reviewedThesis being tested
This definition explains Drawdown accurately, with its practical use and material limitations.
Key assumptions
- The named calculation or convention is stated where definitions vary.
- The example is illustrative and not a forecast or recommendation.
What could invalidate the view
- A different market, instrument, jurisdiction, or methodology may use the term differently.
- The cited authority may revise its guidance or terminology.
- Editorial ownership
- Market Master · reviewed
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- Reviewed financial content
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