Calculate the Maximum Drawdown (MDD) of an investment portfolio or asset’s returns.

Maximum Drawdown (MDD) is a risk management metric that quantifies the largest historical loss of an investment portfolio or asset experienced over a specified time horizon. It provides insights into the downside risk associated with an investment and helps investors make informed decisions about risk tolerance.

Also known as: max drawdown, peak-to-trough decline.

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Calculate the Maximum Drawdown (MDD) in Python

The Maximum Drawdown (MDD) is available in the Risk module of the open-source Finance Toolkit. Install it with:

pip install financetoolkit -U

Then call get_maximum_drawdown as shown below.

from financetoolkit import Toolkit

toolkit = Toolkit(["AMZN", "TSLA"], api_key="FINANCIAL_MODELING_PREP_KEY")

toolkit.risk.get_maximum_drawdown()

Which returns:

  AMZN TSLA
2012 -0.1570 -0.1601
2013 -0.1259 -0.3768
2014 -0.2948 -0.3085
2015 -0.1371 -0.2669
2016 -0.2432 -0.357
2017 -0.1085 -0.2227
2018 -0.3410 -0.3399
2019 -0.1561 -0.4847
2020 -0.2274 -0.6063
2021 -0.1457 -0.3625
2022 -0.5198 -0.7272
2023 -0.1964 -0.2823

Parameters

get_maximum_drawdown accepts the following parameters:

  • period (str, optional): The data frequency for returns (daily, weekly, monthly, quarterly, or yearly). Defaults to “quarterly” if the Toolkit is initialised with quarterly=True, otherwise “yearly”.
  • within_period (bool, optional): Whether to calculate the Maximum Drawdown within the specified period or for the entire period. Thus whether to look at the Maximum Drawdown within a specific year (if period = ‘yearly’) or look at the entirety of all years. Defaults to True.
  • rounding (int | None, optional): The number of decimals to round the results to. Defaults to 4.
  • growth (bool, optional): Whether to calculate the growth of the Maximum Drawdown values over time. Defaults to False.
  • lag (int | list[int], optional): The lag to use for the growth calculation. Defaults to 1.
  • standardize (bool, optional): Whether to standardize (Z-Score) the result. When combined with growth=True, standardizes the growth values instead of the raw values. Defaults to False.
Value at Risk (VaR) Conditional Value at Risk (cVaR) Entropic Value at Risk (eVaR) Conditional Drawdown at Risk (CDaR) Tail Ratio Maximum Drawdown Duration Maximum Drawdown Recovery Time Ulcer Index (UI) GARCH Volatility Model GARCH Volatility Forecast Variance Volatility

The Risk module page introduces the module, and the sidebar lists all of its functions.

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