Meaning and calculation
Maximum historical drawdown is the deepest fall in value from a preceding high within a selected period. For each date, current value is compared with the peak already reached. The measure depends on the order of changes, the start of the window and the data frequency; it differs from the statistical dispersion of returns.[104](#source-cv-covariance)
If a hypothetical value is first 100, then 80 and 64 units, the decline from the peak reaches 36%. A subsequent recovery to 100 does not erase the depth experienced. The same ending result can be accompanied by a different drawdown when events occur in a different order.
Limits of interpretation
Contributions and withdrawals must be separated from the investment result. Historical maximum drawdown is not a guaranteed limit on future losses; the SEC warns that past performance cannot predict future performance.[27](#source-market-performance) For meaningful interpretation, also state the recovery duration and cases where recovery has not yet occurred. The measure does not guarantee liquidity or determine an individual’s acceptable risk. Related reading: [portfolio risk](/guides/portfolio-risk/) and [chart literacy](/guides/chart-literacy/).