Drawdown risk can be defined as the maximum observed loss an investment incurred over a period of time. Here is an example:

You invested $1,000 in year 1. During year 2, it declined in value to $500 by the end of that year. At the end of year 3, the value increased to $1,100. The “Maximum Drawdown” over this period was then -$500, or -50% (the largest loss you incurred over that time period).

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