Maximum Drawdown

Formula

Max drawdown = min( equity_t / running_peak_equity_t − 1 )

Interpretation

The single worst-case loss an investor following the signal would have had to sit through, from any prior peak.

What good looks like

Smaller in magnitude (closer to 0%) relative to the strategy's annual return.

What bad looks like

A drawdown deeper than the annualized return, or one that took a long time to recover from.

Typical range

-15% to -40% is common for single-name long/flat equity strategies over several years — equities are volatile even with a decent signal.

How OmniSignal uses it

Confidence and risk scores mean little without knowing the worst case a holder actually lived through — this is that number.

References

Standard drawdown analysis, used throughout hedge fund and CTA reporting