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Explain the concept of maximum drawdown. Is this a minor or major consideration for a risk...

Explain the concept of maximum drawdown. Is this a minor or major consideration for a risk adverse investor?

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Answer #1

A maximum drawdown is the maximum observed loss from a peak to a trough of a portfolio,before a new peak is attained.Maximum drawdown is an indicator of downside risk over a specified time period.In other words,Maximum drawdown is a specific measure from a high point to a low point,before a new peak is acheived.

Risk averse investor avoid risky investment and prefer safe investment,thus maximum drawdown is major consideration for risk averse investors.

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