Risk characteristics
Return tells you what an asset earned. Risk characteristics tell you what it put its holders through to earn it. On OHLCX Markets the two sit side by side on every asset page, because neither means much without the other.
Four figures, four questions
Each one answers a different question about the same stretch of trading:
- Max drawdown
- How bad did it get? The largest fall from a high to the low that followed it, as a percentage. It is the loss someone would have sat through if they bought at the worst moment.
- Standard deviation
- How much does it move day to day? The spread of daily returns around their average, scaled up to a yearly figure so assets can be compared. This is what most people mean by volatility.
- Sharpe ratio
- Was the return worth the volatility? The yearly rate of return set against that standard deviation. A higher figure means more return for each unit of day-to-day movement.
- Calmar ratio
- Was the return worth the worst fall? The yearly rate of return set against the maximum drawdown. It rewards assets that climbed without deep setbacks.
Volatility and drawdown are not the same thing
Standard deviation treats a sharp rise and a sharp fall alike: both are movement. Drawdown only counts the falls, and only the worst run of them. An asset can have modest volatility and still suffer a deep drawdown if its losses arrive in a row.
That is why the page gives both ratios. Sharpe suits someone who minds the daily swings. Calmar suits someone who can live with noise but not with a long slide.
Comparing two assets
Open the two asset pages and read the same figure on each. Because every figure is expressed per year or as a percentage, a broad index fund and a single volatile stock can be put next to each other fairly.
Look for disagreement. If one asset has the better return and the worse Calmar ratio, the extra return was bought with deeper losses along the way. Whether that trade is worth it depends on the holder, not on the number.
Keep the window in mind
These figures cover the year so far, and the page shows the dates. Early in the year the window is short, and a few unusual days can dominate it. A ratio built on six weeks of data deserves less weight than one built on ten months.
They also describe one market period. A calm year makes almost everything look safe. Risk figures are best read as "how it behaved in this stretch", never as a guarantee about the next.
Risk characteristics, answered
What counts as a good Sharpe ratio?
There is no pass mark, because it depends on the period and the market. It is most useful for comparison: between two assets over the same window, the higher figure earned more for the movement it went through.
Can max drawdown be zero?
Only if the price never closed below an earlier high in the window, which is rare outside a very short period. Early in the year a small drawdown usually says more about the short window than about the asset.
Why is standard deviation shown as a yearly figure?
Daily movements are small numbers that are hard to compare. Scaling them to a year puts every asset on the same footing and matches how volatility is usually quoted.
Do these figures predict future risk?
No. They measure what has happened. Volatility does tend to persist for a while, but a quiet stretch can end without warning.
More about what an asset page shows
Performance metrics
How far an asset has moved, over the last month, the last quarter and the year so far.
Read the guide →Technical analysis
More than twenty indicators, moving averages and pivot levels, read into one plain verdict.
Read the guide →Patterns analysis
Candlestick patterns found on the latest bars, each explained in plain words.
Read the guide →Historical prices
A chart in eight bar sizes and a table of recent bars with open, high, low, close and volume.
Read the guide →Research here. Trade on OHLCX.
OHLCX is a trading platform built for execution. Link your Schwab account to see these same readings on live quotes, place orders with advanced exit flows in one click, and let strategies run on your rules.