2011-07-19 12:29:39
What Does Drawdown Mean?
The peak-to-trough decline during a specific record period of an investment,
fund or commodity. A drawdown is usually quoted as the percentage between the
peak and the trough.
Investopedia explains Drawdown
A drawdown is measured from the time a retrenchment begins to when a new high
is reached. This method is used because a valley can't be measured until a new
high occurs. Once the new high is reached, the percentage change from the old
high to the smallest trough is recorded.
Drawdowns help determine an investment's financial risk. Both the Calmar and
Sterling ratios use this metric to compare a security's possible reward to its
risk.