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Backtesting
Also called: Max drawdown, MDD, Drawdown
Maximum drawdown is the largest fall from a peak to a later low in an investment's value over a period, as a percentage of the peak. It shows the worst loss someone who bought at the top would have sat through.
Max drawdown = (Trough value − Peak value) ÷ Peak value × 100, taking the deepest such fall
A portfolio grew to ₹2 lakh, fell to ₹1.4 lakh, then recovered to ₹2.2 lakh. Its maximum drawdown is (1.4 − 2) ÷ 2 = −30%.
Maximum drawdown is the largest fall from a peak to a later low in an investment's value over a period, as a percentage of the peak. It shows the worst loss someone who bought at the top would have sat through.
Max drawdown = (Trough value − Peak value) ÷ Peak value × 100, taking the deepest such fall. A portfolio grew to ₹2 lakh, fell to ₹1.4 lakh, then recovered to ₹2.2 lakh. Its maximum drawdown is (1.4 − 2) ÷ 2 = −30%.