(Harvest) While there is a strong interest in short-term return performance and volatility of hedge funds, drawdown is still the risk where most investors have placed their focus. Maximum drawdown, as a risk measure, can be formalized as the conditional expected drawdown or the measure of the tail mean of a maximum drawdown distribution. The figure below shows what that distribution will look like. What makes this risk measure especially useful is that it can be employed in any optimization and has a linear attribution to factors.
Drawdowns – Worth a Closer Look As a Risk Measure
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