It sounds like the sequel to an action movie. Like, two years ago, Maximum Drawdown was a surprise hit. So, this summer, we get Return Over Maximum Drawdown.
But, alas, no dope fight scenes here. Just a way to analyze hedge funds.
First, a bit about maximum drawdown. It measures the difference between a fund's maximum return and its low point. The value of a hedge fund will move around as the value of its investment positions change. Depending on what the fund invests in, it might move around a lot. As such, there might be points where the fund is posting a 25% gain for a particular period, then a few weeks later a 5% loss. The maximum drawdown measures this distance.
Return on maximum drawdown takes a fund's average return, and then divides it by the maximum drawdown. It compares the amount of return the fund typically shows with the breadth of the swings it suffers. It compares return with risk, allowing you to judge how much you might earn versus how volatile the fund is.
Related or Semi-related Video
Finance: What Is a Real Return?67 Views
finance- a la shmoop. what is a real return? like is there a fake return? you
know like the news? well kinda .real return refers to an [man frowns talking to camera]
investment return mapped against inflation. so let's say you invest in a
bond that pays five percent a year for ten years and then pays you back your
principal .boring but nice- you know like a good doctor visit. your nominal return
over that period was 5% but since inflation was 3% a year during that
period on average your real return was only 2% a year- meaning that the
performance of your investment only eked out a 2% net gain against the price of [equation]
milk gas and you know knocked off iPhones. so don't be a chump who thinks
that they're making more money than they really are, and you know keep on keeping
it real. [man sitting in chair, talks to camera]
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