Drawdown Distribution Statistics for Relative Risk Assessment

Summary

This indicator presents a framework for examining drawdown severity relative to a rolling history. It offers percentile bands and standard-deviation bands, with configurable lookback and smoothing, and classifies the current drawdown against user-defined historical percentile thresholds. Optional features include volatility-adjusted drawdowns for comparing assets, a risk-free-rate input, and risk-adjusted measures such as Sharpe, Sortino, and Calmar ratios, alongside Value at Risk and conditional Value at Risk calculations.

The script also provides a statistics table, visual risk levels, and alerts for conditions such as unusually severe drawdowns or a new maximum. Its cited research provides context for the selected metric families, but the document contains no empirical results validating the implementation or its alerts. Readings depend on the selected price source, analysis window, smoothing, and thresholds; historical distributions may not represent future risk, and comparisons require consistent data and assumptions.

Key ideas

• The indicator compares current drawdowns with a rolling historical distribution using percentile and standard-deviation bands.
• Smoothing and lookback settings control how noisy or responsive the readings are.
• Optional metrics include risk-adjusted ratios, value-at-risk measures, and volatility-normalized drawdowns.
• Thresholds classify risk relative to the chosen history and can trigger alerts.
• The document gives no validation results, and historical drawdown distributions may not capture future regimes.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.