Why depth is not enough

Two portfolios can experience the same maximum drawdown and still create very different risk. One may fall quickly and recover quickly; another may remain underwater for years. The analysis therefore records depth, duration, recovery and the exposures responsible for the path.

Decomposition

Where position or factor history is available, the research separates market-wide stress from concentration, factor and security-specific contributions.

• Peak-to-trough depth
• Time under water
• Recovery requirement
• Concentration at entry
• Correlation change during stress

Scenario context

Drawdowns are compared with the macro and liquidity environment in which they occurred, while avoiding the assumption that a historical scenario will repeat in the same form.

Decision role

Drawdown analysis belongs upstream of position sizing and risk budgets. Its purpose is to make path risk visible before a portfolio decision is treated as complete.

Methodology

• Measure peak-to-trough depth and underwater duration separately.
• Attribute drawdown by holdings, factors or sleeves where data permits.
• Compare correlation and concentration before, during and after stress.
• Evaluate recovery path and required gain from the trough.

Evidence requirements

• Clean return series with corporate-action and cash-flow treatment documented.
• Portfolio weights or exposure history for attribution.
• Benchmark definition where relative drawdown is discussed.
• Scenario dates and data-frequency assumptions.

Limitations

• Drawdown statistics depend on observation frequency and start/end dates.
• Historical recovery speed is not a forecast of future recovery.
• Portfolio risk research does not establish suitability for a particular investor.

Connected research architecture

• statistical intelligence
• wealth
• risk governance
• investment advisory