Maximum Drawdown MDD
The largest peak-to-trough percentage drop an asset or portfolio suffered over a period, before a new high was reached.
What it is
Maximum drawdown (MDD) measures the worst peak-to-trough decline in value over a chosen window — from a high-water mark down to the lowest point that follows it, before any new peak is set. It is expressed as a percentage of the prior peak, usually as a negative number (e.g., −38%) or its absolute size. Unlike volatility, which treats up-moves and down-moves alike, MDD captures only realized downside: the deepest hole an investor would have sat in had they bought at the worst possible top.
Why it matters
MDD quantifies worst-case pain and is a better proxy for the risk of capitulating at the bottom than standard deviation. A strategy with a smooth average return but a −60% drawdown is one most people cannot actually hold through. The pitfall: it is purely backward-looking and path-specific — it tells you the single worst stretch that already happened, not how long recovery took, how often deep drawdowns recur, or what the next one will be. A small historical MDD can lull you into underestimating tail risk, especially for assets with short or calm sample periods.
How it's calculated
Track the running high-water mark (the highest value reached so far) across the period. At each point compute the drawdown as the current value minus that prior peak, divided by the peak — a non-positive percentage. The maximum drawdown is the most negative of all those readings, i.e., the deepest peak-to-trough fall observed before a new peak was made.
How Quintarthai uses it
A company's deep-analysis page shows historical price drawdowns alongside volatility so you can gauge worst-case downside, not just average risk. Pair it with related risk concepts in the Knowledge Base to read MDD in context with return.