Weighted MaxDD takes the worst peak-to-trough fall each of your holdings suffered on its own, and blends them together using your portfolio weights. It answers a deliberately harsh question: if every stock you own had its worst moment on the same day, how far would the whole portfolio have dropped? That is not what usually happens — and that is the point.
A maximum drawdown is the largest peak-to-trough fall a price suffered over some window: you find the highest point, then the lowest point that came after it, and measure the drop between them as a percentage. It is always zero or negative. A stock that climbed from $80 to $120 and then slid to $90 before recovering has a maximum drawdown of (90 − 120) ÷ 120 = −25%.
Drawdown matters more than volatility to most real investors, because it is the number that describes the experience of holding something. Volatility is an abstraction. A 40% drawdown is the specific feeling of watching almost half your money evaporate, and it is the moment at which most people sell at the bottom. Knowing the number in advance is how you avoid finding out about your risk tolerance the expensive way.
Our portfolio card computes this over two windows: the last year (about 252 trading days) and the last 90 trading days. The 1-year figure tells you about a full market cycle's worth of pain. The 90-day figure tells you what the recent tape has been like.
For each holding i, take its own maximum drawdown over the window, ddᵢ, and your portfolio weight in it, wᵢ. The card computes the weighted average: Weighted MaxDD = Σ(wᵢ × ddᵢ) ÷ Σ(wᵢ), summed over the holdings for which a drawdown could actually be computed.
That denominator is doing quiet, important work. If one of your holdings has no usable price history, it is dropped from the top and the bottom of the fraction — the remaining weights are renormalised so they still sum to one. The number you see is therefore always a weighted average over the covered part of your portfolio, never a number silently diluted by a missing holding counted as zero. Zero would be a lie; a renormalised average is an honest answer to a slightly smaller question.
Example (illustrative — invented numbers chosen to show the mechanics, not real holdings). A three-stock portfolio: 50% in a stock whose worst 1-year fall was −20%, 30% in one that fell −40%, and 20% in one that fell −10%.
Weighted MaxDD = (0.50 × −20) + (0.30 × −40) + (0.20 × −10) = −10 − 12 − 2 = −24%. Divided by the total weight of 1.0, that is −24%.
Now the crucial caveat, and the reason for the "conservative" hint on the card. Your portfolio almost certainly never actually fell 24%. Those three worst days were three different days. While one holding was collapsing, another may have been flat or rising. The real portfolio drawdown — computed from the combined portfolio value day by day — is normally shallower than this weighted blend, and the gap between the two is precisely the benefit diversification bought you.
The card deliberately does not give you that benefit for free. It shows you the pessimistic version, on the principle that a risk number should err toward making you cautious. If you want to reason about the real, shallower figure, you need to think about correlation between your holdings — and about concentration, which tells you how many independent bets you really have.
It overstates your risk in calm times and understates it in a crisis. That sounds contradictory; it is not. In normal markets, holdings bottom on different days, so the weighted blend is too harsh. In a genuine crash, correlations rush toward 1 — everything falls together — and the "conservative" assumption stops being conservative and starts being roughly accurate. The number is most wrong exactly when you are relaxed, and most right exactly when you are frightened. That is the case for reading it seriously. See diversification for why the protection you are counting on tends to evaporate under stress.
It is history, not a forecast. Maximum drawdown is a record of the worst thing that already happened in the window. It is not a ceiling. A stock that has never fallen more than 15% can fall 60% tomorrow, and a quiet year in the data does not make a business safe. Treat the figure as "at least this bad has happened," never as "no worse than this can happen."
And it is sensitive to the window. A stock that listed recently, or that happens to have spent the last 90 days drifting, will show a small drawdown simply because it has not been tested. Compare the 1-year and 90-day figures: when the short window looks much calmer than the long one, you are looking at a quiet patch, not at a change in the underlying risk.
The weighted average of each holding's own worst peak-to-trough fall, using your portfolio weights: Σ(weight × drawdown) ÷ Σ(weight) over the holdings with usable price history. It is shown over a 1-year and a 90-day window.
Because it implicitly assumes every holding suffers its worst fall at the same time. Real portfolios rarely behave that way, so your actual drawdown was usually shallower. The card errs toward caution rather than crediting you with diversification that may not hold up.
It is dropped from both the numerator and the denominator, and the remaining weights are renormalised. The figure is an honest average over the covered holdings rather than a number quietly diluted by treating a missing holding as zero risk.
No. It is the worst it did fall within the measured window. Drawdowns are a record, not a limit — the next one can always be deeper, and a quiet history is not evidence of safety.
Browse all S&P 500 tickers to see this metric applied to individual companies.
Educational research only — not investment advice.