Maximum Drawdown or Maximum Loss

This function computes the maximum drawdown or maximum loss of the univariate time series (or vector) x.

maxdrawdown(x)

Arguments

x

a numeric vector or univariate time series.

Details

The max drawdown or max loss statistic is defined as the maximum value drop after one of the peaks of x. For financial instruments the max drawdown represents the worst investment loss for a buy-and-hold strategy invested in x.

Value

A list containing the following three components:

maxdrawdown

double representing the max drawdown or max loss statistic.

from

the index (or vector of indices) where the max drawdown period starts.

to

the index (or vector of indices) where the max drawdown period ends.

Author

A. Trapletti

See also

sterling

Examples

# Toy example
x <- c(1:10, 9:7, 8:14, 13:8, 9:20)
mdd <- maxdrawdown(x)
mdd
#> $maxdrawdown
#> [1] 6
#> 
#> $from
#> [1] 20
#> 
#> $to
#> [1] 26
#> 

plot(x)
segments(mdd$from, x[mdd$from], mdd$to, x[mdd$from], col="grey")
segments(mdd$from, x[mdd$to], mdd$to, x[mdd$to], col="grey")
mid <- (mdd$from + mdd$to)/2
arrows(mid, x[mdd$from], mid, x[mdd$to], col="red", length = 0.16)


# Realistic example
data(EuStockMarkets)
dax <- log(EuStockMarkets[,"DAX"])
mdd <- maxdrawdown(dax)
mdd
#> $maxdrawdown
#> [1] 0.256471
#> 
#> $from
#> [1] 236
#> 
#> $to
#> [1] 331
#> 

plot(dax)
segments(time(dax)[mdd$from], dax[mdd$from],
         time(dax)[mdd$to], dax[mdd$from], col="grey")
segments(time(dax)[mdd$from], dax[mdd$to],
         time(dax)[mdd$to], dax[mdd$to], col="grey")
mid <- time(dax)[(mdd$from + mdd$to)/2]
arrows(mid, dax[mdd$from], mid, dax[mdd$to], col="red", length = 0.16)