Return over max drawdown = avg portfolio return/ Max drawdown What is the exact definition of max drawdown. I have seen two versions: 1. Calculate the range (Max - Min) of the monthly return date. The Min & Max may not be consecutive months. 2. Look for the steepest delta (drop or rise) between two consecutive months in the range of data. thanks, bn
From what I understood, the drawdown is related to the high water mark feature of hedge funds. Max Drawdown = Highest return the fund generates in a measurement period minus any subsequent low return. Anyone else?
It is my understanding that Max Drawdown is measured based on two consecutive periods and is not necessarily the Global Max or the Global Min which are the highest and lowest during the measurement period.
RoMAD is something I was curious about. In the nominator (average return) should be a percentage, in the denominator difference between HWM and lowest subsequent NAV. What kind of stupid miniscule value will come out of this formula? Or am I missing something?
we discussed this briefly last year. http://www.analystforum.com/phorums/read.php?13,517284,517284#msg-517284 I still think it’s potentially a useful measurement, but JDV makes compelling points about its flaws. importantly, unless the managers being compared have been in business over the same period it’s pretty unfair.
lig, the roMAD is time period sensitive obviously, so if you are comparing two managers one started in 1994 and the other one in 2005, I think it would be wise to compare their performance from a Common start point. And calcluate roMAD over the same time period. It is very important to also look at teh period the drawdown occurd and look at the macro environment to see if you can understand why they underperformed and do you see the possibility of it occuring again.