Written by Jake Dwyer
Updated over a week ago

Rev. Date May 30, 2019

Drawdown Analysis was designed to help allocators understand which historical periods, if repeated today, could create a drawdown in a portfolio or investment given the portfolio’s or investment’s factor exposures as determined on [TEST].

The factor exposures are calculated using the last 3 years of monthly or daily data.[1]

This chart displays a current portfolio’s or investment’s estimated performance during a prior drawdown period. This feature does not tell you how your portfolio or investment actually performed during the selected period.

Drawdown Analysis takes a current portfolio’s or investment’s factor exposures and multiplies them by the historical factor returns. If a benchmark is selected, its estimated performance, calculated as described above, is displayed as a blue line alongside the portfolio’s or investment’s estimated performance.

Portfolio and investments are not rebalanced during the drawdown or recovery.

To account for any residual, Drawdown Analysis determines an estimated historical residual for that portfolio or investment and uses that for any period selected, making adjustments to account for the length of the drawdown.

The error bars shown attempt to capture the uncertainty of the portfolio’s or investment’s residual based on its volatility.

The left display highlights returns from factors during the drawdown period (not including the recovery period) and, for comparison, the historical average for that factor (displayed as a black dotted line). For drawdown periods over a year, both factor returns and historical average factor returns are shown as 1-year annualized metrics.

The right display highlights increases in factor correlations during a selected drawdown period. If [TEST] observed an increased correlation between two factors in the drawdown period, the cell will be marked accordingly per the color-coded scale beneath the chart. Users can also hover over cells to see additional data.

This historical average is calculated using [TEST]’s factor returns from 2002 to date. For drawdown periods less than one year, the historical average factor return is scaled to correspond to the same length of time as the drawdown.

This section shows your portfolio’s or investment’s average factor exposures for the selected period as well as each factor’s contribution to the drawdown. If a benchmark is selected, its factor exposures will be displayed as a blue diamond alongside your portfolio’s or investment’s exposures.

This section displays a strategy’s or investment’s contribution to the drawdown when performing the analysis on a portfolio.

Strategy and investment drivers are organized into three columns:

[1] The minimum amount of data required depends on data frequency. For example, if a user’s portfolio or investment has quarterly data, [TEST] requires 9 years (or 36 data points) to run analysis.

This document highlights certain aspects of this analytic. As an overview, it does not discuss all material facts or assumptions. Please see Important Disclosure and Disclaimer Information.