![]() ![]() We use maximum drawdown as one of the key statistics for evaluating our quantitative investment strategies and for deciding on the introduction of new variables in our models. The Calmar ratio is determined by taking the investment funds estimated annual rate of return, usually for a three-year term, and dividing it by its maximum. Most investors would strongly prefer the first strategy, because it has a much lower maximum drawdown than the second strategy! Furthermore, the length of the drawdown period is shorter. For example, VaRs and CVaRs calculated from Gaussian distributions are dierent with the risk measures from heavy-tailed distributions. More-over, the maximum drawdown is a model-free risk measure. However, the maximum drawdown can also be calculated based on returns relative to a benchmark index, for identifying strategies that show steady outperformance over time.įor example: two strategies can have the same average outperformance, tracking error, information ratio and volatility, but their maximum drawdowns compared to the benchmark can be very different.įor instance, suppose that the first one achieves a monthly performance of 1%, -0.5%, 1%, -0.5% and so on versus the benchmark, while the second strategy achieve an outperformance of 1% each month during the first half of the sample, but an underperformance of 0.5% each month during the second half of the sample. it is computed from a simple sum of log-returns during the drawdown period, it is easier to calculate maximum drawdown directly from time series. The maximum drawdown can be calculated based on absolute returns, in order to identify strategies that suffer less during market downturns, such as low-volatility strategies. It is usually quoted as a percentage of the peak value. ![]() Maximum drawdown is defined as the peak-to-trough decline of an investment during a specific period. ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |