Drawdown Calculator
Advanced investment risk tool. Calculate required recovery gains after losses, analyze portfolio drawdown curves, and determine Max Drawdown (MDD) from historical return series.
Insight: As losses deepen, the effort to recover grows exponentially. A 50% loss is not twice as bad as a 25% lossβit is mathematically 3x harder to recover from (100% gain vs 33% gain).
About
In investment management, Drawdown is a critical measure of downside volatility. It represents the decline from a historical peak in total equity to a subsequent trough. Unlike standard deviation, which treats upside and downside volatility equally, drawdown focuses specifically on the risk of capital loss.
This tool serves two primary functions for traders and fund managers. First, the Recovery Calculator quantifies the geometric asymmetry of losses: losing 50% of capital requires a 100% gain to return to break-even. Second, the Series Analyzer processes historical return data to compute the Max Drawdown (MDD), a key metric used to evaluate hedge fund performance and the Ulcer Index.
Formulas
The formula to calculate the percent gain required to recover from a loss L is derived from the inverse relationship of percentages:
Where L is the loss expressed as a decimal (e.g., 0.20 for 20%).
For a time series of equity values E, the Drawdown at time t is calculated relative to the maximum equity peak achieved up to that point:
Where Peakt = max(E0, E1, ..., Et).
Reference Data
| Loss of Capital (L) | Remaining Equity | Required Gain to Recover (G) | Multiplier Needed |
|---|---|---|---|
| 1% | 99% | 1.01% | 1.01x |
| 5% | 95% | 5.26% | 1.05x |
| 10% | 90% | 11.11% | 1.11x |
| 15% | 85% | 17.65% | 1.18x |
| 20% | 80% | 25.00% | 1.25x |
| 25% | 75% | 33.33% | 1.33x |
| 30% | 70% | 42.86% | 1.43x |
| 40% | 60% | 66.67% | 1.67x |
| 50% | 50% | 100.00% | 2.00x |
| 60% | 40% | 150.00% | 2.50x |
| 75% | 25% | 300.00% | 4.00x |
| 90% | 10% | 900.00% | 10.00x |
| 95% | 5% | 1,900.00% | 20.00x |
| 99% | 1% | 9,900.00% | 100.00x |