In economics and finance, "drawdown" refers to the reduction of an investment, capital, or asset value from its peak to its subsequent trough. It is often expressed as a percentage and is a crucial concept for understanding the risks associated with investments. Here are some key points regarding drawdown: 1. **Measurement**: Drawdown is typically measured as the difference between the peak value of an investment and its lowest point following that peak.
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The absolute decline from a previous running peak of a cumulative-value process. For positive peak values a relative decline can also be defined, but that is a different unit convention. Flat intervals do not end a drawdown, and a brief recovery that stays below the previous peak does not necessarily end it either. A maximum consecutive strictly negative run is therefore not generally a maximum drawdown.