Maximum drawdown formula11/13/2023 In order to calculate our metric, we need to calculate the maximum drawdown for all securities and then average the result. The maximum drawdown is the lowest value of the preceding series which is -14.95%, and this is the maximum you can lose if you have invested in that particular security. Now, for each element of the series, divide the equity series values by the maximum equity series values, subtract the result by one then multiply it by 100. If we add another value of 110 to the equity series, the last maximum equity series value will stay at 120. A maximum drawdown (MDD) is the maximum loss from a peak to a trough of a portfolio, before a new peak is attained. Note that if we add a value of 120 to the equity series, the corresponding maximum equity value will be 120. We have to create the maximum equity series by selecting the maximum equity number from the preceding equity values.Įquity series: 100, 110, 99, 103.95, 93.55, 102.91 To get the different equity values after each return, you need to multiply the last equity number with the following factor: (1 + (Return in percentage / 100)) Maximum drawdown is an important risk-adjusted return metric that tells us a lot about a stock. Imagine you start with an initial equity of 100$ and that a certain rule generates the following outputs (returns in this case): 10%, -10%, 5%, -10%, 10% How to calculate maximum drawdown in Excel and what it means. Click on "New" to add an empty metric, and then click on the green dot to edit the metric.Ĭalculating the maximum drawdown of a security: ![]() In the "Rules Analyzer Settings" form, select "Metrics" in the left panel. ![]() Select or create a list of rules, then click on "Analyze". In this post, we will show you how to calculate a custom metric which is the average maximum drawdown of all analyzed securities.We will first calculate the maximum drawdown for each symbol and then average the results.įrom the menu, click on "Analysis" then "Rules Manager".
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