Average Drawdown
Average drawdown is the mean distance of the portfolio below its running peak, taken over every day of the run window. Every day spent below a previous high counts, in proportion to how far below it is.
Mathematical Formulation
Drawdown
Compounded wealth, the same drawdown series as maximum drawdown, CDaR and the ulcer index.
Definition
Reported as a positive number.
Reading it
Maximum drawdown keeps the deepest point of the drawdown series; average drawdown averages the whole series. A long shallow drawdown can therefore raise it more than a short deep one.
MinAverageDrawdown minimizes the uncompounded form of this measure, on summed rather than compounded returns. The two differ slightly, more on volatile books.
Like every metric on FolioLab, this value describes the run window. It is a measurement of past returns, not a forecast of future ones.
Where FolioLab reports it
results.<method>.performance.average_drawdown: daily, over the run window.
Each value appears on the result page under Further Risk Measures, in the PDF and Excel reports, in the compare view and through the MCP explain_metric tool. A run stored before this measure existed does not carry it.
skfolio's average_drawdown gives the same value on the same drawdown series.
References
- Chekhlov, A., Uryasev, S., & Zabarankin, M. (2005). "Drawdown Measure in Portfolio Optimization." International Journal of Theoretical and Applied Finance, 8(1), 13-58.
Not investment advice. Past performance is not indicative of future results.