Maximum Drawdown
Measuring the peak-to-trough decline: The ultimate metric for psychological risk.
Quick Definition
Maximum Drawdown (MDD) is the maximum loss from a peak to a trough of a portfolio, before a new peak is attained. It is a critical indicator of downside risk over a specific time period.
The Formula
Why It Matters More Than Volatility
While standard deviation (volatility) measures both up and down movements, MDD only focuses on the **capital destruction**. It tells you: *"If I invested at the worst possible time, how much would I have lost before it broke even?"*
Recovery Time
An often overlooked part of MDD is **duration**. A -20% drawdown that lasts 2 months is manageable. A -20% drawdown that lasts 5 years (like Japan's Nikkei) is a strategy-killer. StressTest.pro tracks both the depth and the recovery time of every drawdown.
Stress test your downside
See how your current portfolio would have fared in 2008, 2020, and 2022. We calculate your historical Max Drawdown down to the day.
Analyze Downside Risk