Drawdown

A drawdown describes the decline in value of an asset, strategy, or portfolio from its most recent peak to a subsequent low.

While volatility measures how much prices fluctuate, drawdown shows how deep losses can become in practice. This makes it a more intuitive way to think about downside risk.

In commodity markets, drawdowns often occur during periods of sudden supply shocks, macro uncertainty, or liquidity stress.

How drawdowns are used

Monitoring drawdowns helps market participants to:

• evaluate how resilient a strategy is during stress
• compare downside risk across different approaches
• understand capital preservation characteristics

Large drawdowns can sometimes signal deeper structural market change rather than temporary price noise.

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