Compute maximum drawdown for one or more price series
Calculate the maximum drawdown (
MaxDD) using example data with a fund, market, and cash series:
load FundMarketCash MaxDD = maxdrawdown(TestData)
MaxDD = 1×3 0.1658 0.3381 0
The maximum drop in the given time period was 16.58% for the fund series, and 33.81% for the market series. There was no decline in the cash series, as expected, because the cash account never loses value.
Data— Total return price series
Total return price series, specified as a
N matrix with
T samples of
N total return price
Format— (Optional) Format of
Data, specified as character vector with
the following possible values:
'return' (default) — Maximum
drawdown in terms of maximum percentage drop from a peak.
— Maximum drawdown of an arithmetic Brownian motion with drift (differences of data from peak to trough) using the equation
— Maximum drawdown of a geometric Brownian motion with drift (differences of log of data from peak to trough) using the equation
MaxDD— Maximum drawdown
Maximum drawdown, returned as a
N vector with maximum
drawdown for each of
N time series.
Drawdown is the percentage drop in total returns from the start to the end of a period. If the total equity time series is increasing over an entire period, drawdown is 0. Otherwise, it is a positive number. Maximum drawdown is an ex-ante proxy for downside risk that computes the largest drawdown over all intervals of time that can be formed within a specified interval of time.
Maximum drawdown is sensitive to quantization error.
MaxDDIndex— Start and end indexes for each maximum drawdown period for each total equity time series
Start and end indexes for each maximum drawdown period for each total
equity time series, returned as a
N vector of start and end
indexes. The first row of the vector contains the start indexes and the
second row contains the end indexes of each maximum drawdown period.
 Christian S. Pederson and Ted Rudholm-Alfvin. "Selecting a Risk-Adjusted Shareholder Performance Measure." Journal of Asset Management. Vol. 4, No. 3, 2003, pp. 152–172.