drawdown

1. "Drawdown is the measure of the decline from a historical peak in some variable (e.g., the variable of interest might be the cumulative profit since inception from the purchase of a share of common stock). Somewhat more formally, if X(t) is a random process [X(0)=0, t≥0], the drawdown at any time, T, is defined as

-Min[0, X(T)-Max[X(t) where ≤ t ≤ T]

In finance, the use of drawdown as an indicator of risk is particularly popular in the world of Commodity trading advisors with the derivation of three performance measures: the Calmar Ratio, the Sterling Ratio and the Burke Ratio. These measures can be considered as a modification of the Sharpe ratio in the sense that the numerator is always the excess of mean returns relatively to a risk-free rate while the standard deviation of returns in the denominator is replaced by other compilations of drawdown." drawdown: Information and Much More from Answers.com

2. "Drawdown: The peak-to-trough decline during a specific record period of an investment, fund or commodity. A drawdown is usually quoted as the percentage between the peak and the trough.

A drawdown is measured from the time a retrenchment begins to when a new high is reached. This method is used because a valley can't be measured until a new high occurs. Once the new high is reached, the percentage change from the old high to the smallest trough is recorded.Drawdowns help determine an investment's financial risk. Both the Calmar and Sterling ratios use this metric to compare a security's possible reward to its risk. http://www.investopedia.com/terms/d/drawdown.asp