Library term·Portfolio & valuation

Optimising Portfolios Through Maximum Drawdown Periods

Max drawdown measures peak-to-trough loss; minimising or bounding it changes optimal weights versus mean–variance solutions.

Authored by·Editorially reviewed

Onur Erkan Yıldız

Founder, Financial Engineer · CMB-licensed

Higher education in Financial Engineering and Money & Capital Markets. SPK (Turkey CMB) licence. 16 years across institutional markets, research, and quant-driven analytics.

Overview

Investors often care more about path risk than annual volatility. CVaR/Drawdown-aware optimisation penalises left tails explicitly.

Practical takeaway

Combine liquidity and correlation breakdown assumptions — hedges fail most when you need them.

How this connects to Finvestopia

Radar backtests surface win-rates and drawdown-style context for strategy tiles — a retail-friendly lens on tail behaviour.

Related entries

Risk-Reward Ratio (R:R)

The expected profit of a trade divided by its potential loss. A 1:3 ratio means a $1 risk is taken to make $3.

Sharpe & Sortino Ratios

Sharpe scales excess return by total volatility; Sortino penalises only downside deviation — kinder to positively skewed strategies.

Educational content authored by our team — informational only, not investment advice.