## About Draw Down Ratio Calculator (Formula)

The Drawdown Ratio is a financial metric used to measure the magnitude of a decline in investment value from its peak to its lowest point, expressed as a percentage. It provides insights into the risk associated with an investment or trading strategy.

The formula to calculate the Drawdown Ratio is as follows:

**Drawdown Ratio = (Peak Value – Trough Value) / Peak Value**

Where:

- Peak Value is the highest point of the investment value.
- Trough Value is the lowest point of the investment value.

The result of the calculation is expressed as a decimal or a percentage.

For example, let’s say an investment had a peak value of $10,000 and a trough value of $8,000. To calculate the Drawdown Ratio:

Drawdown Ratio = ($10,000 – $8,000) / $10,000 = $2,000 / $10,000 = 0.2 or 20%

In this example, the Drawdown Ratio is 20%, indicating that the investment experienced a decline of 20% from its peak value to its lowest point.