Master the “MaximumDrawdowns” Function for Portfolio Risk Analysis

The MaximumDrawdowns function in MarketXLS helps you pinpoint the biggest peak-to-trough losses for any portfolio of US stocks or ETFs over a certain number of months. By specifying an initial investment amount, this function scales results based on how much you initially invested, making it simpler to see potential downside. Whether you’re backtesting historical results or stress-testing a portfolio’s risk, MaximumDrawdowns provides quick, actionable insights directly in Excel.

Why Use This Function?

• Gauge potential downside risk: Understand the largest drop your portfolio experiences from a peak over the specified timeframe.
• Compare historical drawdowns: Quickly spot which portfolios or allocations have historically experienced deeper losses.
• Support risk management decisions: Combine MaximumDrawdowns with other metrics (like Sharpe or Sortino ratios) to inform portfolio adjustments.
• Observe seasonal or cyclical patterns: Drawdowns often cluster in specific market cycles; using this function helps reveal those patterns.
• Stress-test your strategies: If you’re testing new trading or investing ideas, seeing maximum drawdowns can help set realistic expectations around volatility and potential losses.

How to Use in Excel

MaximumDrawdowns(Portfolio, Period, InitialAmount)

1. Enter your portfolio composition into Excel (e.g., tickers and weights in adjacent columns).
2. In a new cell, type =MaximumDrawdowns(.
3. Select or reference the Excel range that contains your portfolio data for the first argument, e.g., B3:C7 where tickers and weights are listed.
4. Specify the lookback months as the second argument (e.g., 12 for the last 12 months).
5. Optionally, define an initial amount invested as the third argument (defaults to 10,000 if omitted).
6. Press Enter to see the result returned as a numeric value in that cell, representing the largest drawdown (peak to trough loss).

Parameters Explained

Example Usage

Basic Examples

1. Simple drawdown check for one year:
   • Portfolio (B3:C7) has four tickers with assigned weights.
   • Period = 12 months.
   • Initial investment = 10,000.

   In an empty cell:
   =MaximumDrawdowns(B3:C7, 12, 10000)

   After a brief calculation, it returns a single numeric value (e.g., -2300), indicating the maximum peak-to-trough loss of $2,300 over the past year.

2. Using the default initial amount:
   =MaximumDrawdowns(B3:C7, 12)
   Here, the function assumes an initial investment of 10,000 and calculates the drawdown based on that.

3. Longer timeframe check (2 years) with a 20,000 starting balance:
   =MaximumDrawdowns(B3:C7, 24, 20000)
   This calculates the portfolio’s largest drawdown across a 24-month history, beginning from a 20,000 initial investment.

Advanced Scenarios

1. Multi-asset, multi-year analysis:
   If your portfolio includes up to 500 tickers (the maximum supported), arrange them in Excel with their weights, and reference the entire range as the first parameter. By setting Period to a higher number (e.g., 48) and adjusting InitialAmount to reflect your real funds (e.g., 50,000), you can examine four years of performance.
   Example:
   =MaximumDrawdowns(B3:C502, 48, 50000)

2. Monthly portfolio re-balancing:
   Combine the MaximumDrawdowns function with other MarketXLS functions such as Sharpe or Sortino to build a more complete risk assessment table. You can reference the same portfolio range in multiple formula cells: one for maximum drawdowns, another for monthly returns, and so on. This helps you maintain a holistic risk dashboard without switching between systems.

Common Questions and Troubleshooting

1. “Why do I see ‘NA’ as a result?”
   • An “NA” can appear if any portfolio tickers are invalid or there’s an internal data issue. Check your ticker validity, weights, and period.
   • It can also occur when the license is invalid; ensure your MarketXLS license is active.

2. “My portfolio weights don't total 1. Will this cause errors?”
   • No, if weights do not total exactly 1 (100%), the function automatically adjusts them proportionally. If your portfolio is very small or very large, check the final numeric weighting by referencing the outcome from additional MarketXLS tools.

3. “What if I only have a partial data history for some stocks?”
   • If data is incomplete for a ticker, it is typically excluded and the rest of the portfolio re-adjusts. You might see a warning if certain stocks have no data in the timeframe.

4. “Can I pass parameters without specifying them all?”
   • Yes. The Period defaults to 12 and the InitialAmount defaults to 10,000 when omitted.
   • Example: =MaximumDrawdowns(B3:C7) returns maximum drawdowns over 12 months and a starting amount of 10,000.

These examples and details should help you seamlessly integrate the MaximumDrawdowns function into your daily workflow. By combining it with other powerful MarketXLS risk and returns metrics, you can develop a comprehensive view of both past performance and potential future volatility, directly in Excel.