Drawdown measures how far a value has fallen from its highest point before recovering. It is typically expressed as a percentage decline from the peak to the lowest point reached afterward. Maximum drawdown refers to the largest such drop observed over a period.
The concept applies to the price of an asset and, commonly, to the value of a portfolio or account. It captures the depth of a decline and, by extension, the experience of holding through a downturn.
Drawdown is a core risk measure because it describes downside in concrete terms: a 50% drawdown requires a 100% gain just to return to the prior peak. As a descriptive statistic about historical declines, it helps frame the magnitude of risk without forecasting future moves.