Using drawdown as a measure of investment risk
November 22nd, 2009
2 comments
The standard and most talked about measure of risk in finance is standard deviation. While standard deviation has its reasons for existence in academic literature, a more applicable and intuitive measure of risk would be drawdown.
The drawdown of an investment is simply defined as the largest loss that occurs in the past. That is the difference between the highest and lowest price in all the historical price movements of the asset. Measurement of drawdown needs to consider the time period. In other words, the percentage lost from the highest point to the lowest point within a period.
In equation…
Continue Reading . . .
Categories: ETFs, Stock Investing
