Maximum Drawdown Risk Management

Why cumulative drawdown can catch fragility that daily VaR may miss.

Category: Risk

Different risk lens

Daily VaR focuses on one-day tail loss. Maximum drawdown captures cumulative path damage. A stock can pass daily VaR but still have a catastrophic trailing drawdown.

Fund workflow

Drawdown gates protect the fund from names with severe fundamental or dilution risk that normal daily volatility metrics may understate.

Interpretation

A deep drawdown does not automatically mean a stock is uninvestable, but it requires stronger evidence and tighter risk controls.