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Glossary · PSX term

Maximum drawdown.

Maximum drawdown is the largest peak-to-trough fall an investment has experienced over a period.

Definition

It captures the worst-case historical loss and is used to compare downside risk between strategies or funds. A smaller maximum drawdown generally means a smoother, less stressful ride.

Worked example

A fund whose worst decline was 40% has a larger maximum drawdown than one that never fell more than 20%.

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