Maximum Drawdown

Risk & Portfolio
Updated Apr 2026 • Has calculator

The largest peak-to-trough decline in a portfolio's value — the worst-case loss any investor could have experienced.

What is Max Drawdown?

Maximum drawdown (MDD) measures the largest percentage decline from a historical peak to a subsequent trough before a new peak is reached. It represents the worst loss an investor would have suffered if they bought at the highest point and sold at the lowest within the measurement period. A drawdown of −20% or more is conventionally defined as a bear market. Maximum drawdown is favoured by risk-averse investors — particularly retirees and endowments — because it directly measures the most painful outcome rather than average volatility. It is a key input to the Calmar ratio and is used to size risk limits in hedge fund and wealth management mandates. Recoveries from large drawdowns require disproportionately larger gains: recovering from a −50% loss requires a +100% gain.

Formula

MDD = (Trough Value − Peak Value) / Peak Value × 100

Worked Example

Worked example — S&P 500 Index (SPX) — COVID-19 Crash

Feb–Mar 2020

Step 1  S&P 500 closing peak: 3,386 (19 Feb 2020)
Step 2  S&P 500 closing trough: 2,237 (23 Mar 2020)
Step 3  MDD = (2,237 − 3,386) / 3,386 × 100
Step 4  MDD = −1,149 / 3,386 × 100 = −33.9%
Step 5  → The S&P 500 lost nearly 34% in 33 calendar days

Source: S&P Dow Jones Indices — S&P 500 Historical Data (2020-03-23)

Calculate Max Drawdown

Enter comma-separated prices or NAV values in chronological order

Maximum Drawdown

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Not investment advice.

How to Interpret Max Drawdown

< -40
Severe (> 40%) — catastrophic; requires 67%+ gain to recover
-40 – -20
Bear Market (20–40%) — significant bear market territory
-20 – -10
Correction (10–20%) — normal cyclical correction
> -10
Mild (< 10%) — minor pullback; well-managed downside risk

📚 Advanced Risk — Complete the path

  1. Value at Risk
  2. Max Drawdown
  3. Calmar Ratio
  4. Capture Ratios
  5. Kelly Criterion
Sources
  1. CFA Institute — Portfolio Management, 7th ed., Ch. 6
  2. S&P Dow Jones Indices — S&P 500
  3. Investopedia — Maximum Drawdown