[R-SIG-Finance] Drawdown functions from PerformanceAnalytics

[Brian G. Peterson]

Samuel is correct.

Returns are multiplied times assets to get returns in a currency (or 
price change).  As such, whole number returns don't make any sense. 
This is the convention used by every statistical finance package I've 
ever seen, including R.

If you have cash 'returns' in a currency, you'll bneed to convert them 
to simple returns first.  see 'Return,calculate', among others.

Just to finish out the example:

#####
# Using Samuel's modified series:
maxDrawdown(xts(c(0,0.10,-0.10,-0.01,0.01,0.02), Sys.Date()-6:1), 
geometric=T)
# [1] 0.109

maxDrawdown(xts(c(0,0.10,-0.10,-0.01,0.01,0.02), Sys.Date()-6:1), 
geometric=FALSE)
# [1] 0.1

# and now chaning so that there are no repeated numbers
maxDrawdown(xts(c(0,0.05,-0.10,-0.01,0.01,0.02), Sys.Date()-6:1), 
geometric=FALSE)
# [1] 0.1047619

maxDrawdown(xts(c(0,0.05,-0.10,-0.01,0.01,0.02), Sys.Date()-6:1), 
geometric=TRUE)
# [1] 0.109

# and charting for a visual representation,
# drawdowns are the third panel

charts.PerformanceSummary(xts(c(0,0.05,-0.10,-0.01,0.01,0.02), 
Sys.Date()-6:1))

#####

Regards,

   - Brian


On 09/02/2010 04:55 AM, Samuel Le wrote:
> I think your asset returns are not supposed to be in percentage, so you should use c(0,0.10,-0.10,-0.01,0.01,0.02) instead.
>
> Samuel
>
> -----Original Message-----
> From: r-sig-finance-bounces at stat.math.ethz.ch [mailto:r-sig-finance-bounces at stat.math.ethz.ch] On Behalf Of Mark Breman
> Sent: 02 September 2010 10:21
> To: r-sig-finance at stat.math.ethz.ch
> Subject: [R-SIG-Finance] Drawdown functions from PerformanceAnalytics
>
> Hello everyone,
>
> I'm looking at the Drawdown functions from the PerformanceAnalytics package
> and I just don't get it.
> The docs say that the input should be Asset Returns and the output will be
> drawdown levels as percentages but if I call them with a simple return
> series I don't get what I expect.
>
> For instance: if I have a simple returns series like c(0, 10, -10, -1, 1, 2)
> I would expect the maximum drawdown to be -11 (or 110%), but instead I get:
>
>> library(PerformanceAnalytics)
>> maxDrawdown(xts(c(0, 10, -10, -1, 1, 2), Sys.Date()-6:1), geometric=T)
> [1] 10
>
> Changing the geometric parameter to False also gives me not what I would
> expect:
>
>> maxDrawdown(xts(c(0, 10, -10, -1, 1, 2), Sys.Date()-6:1), geometric=F)
> [1] 1
>
> findDrawdowns() gives me an error:
>
>> findDrawdowns(xts(c(0, 10, -10, -1, 1, 2), Sys.Date()-6:1), geometric=T)
> Error in if (drawdowns[i]<  sofar) { : argument is of length zero
>
> Here is my sessionInfo()
>
>> sessionInfo()
> R version 2.11.1 (2010-05-31)
> i486-pc-linux-gnu
>
> locale:
>   [1] LC_CTYPE=en_US.utf8       LC_NUMERIC=C              LC_TIME=en_US.utf8
>         LC_COLLATE=en_US.utf8     LC_MONETARY=C
>   [6] LC_MESSAGES=en_US.utf8    LC_PAPER=en_US.utf8       LC_NAME=C
>        LC_ADDRESS=C              LC_TELEPHONE=C
> [11] LC_MEASUREMENT=en_US.utf8 LC_IDENTIFICATION=C
>
> attached base packages:
> [1] stats     graphics  grDevices utils     datasets  methods   base
>
> other attached packages:
>   [1] fTrading_2100.76           fBasics_2110.79            MASS_7.3-5
>            timeSeries_2120.89         timeDate_2120.90
>   [6] XML_3.1-1                  quantmod_0.3-14            TTR_0.20-2
>            Defaults_1.1-1             PerformanceAnalytics_1.0.3
> [11] xts_0.7-5                  zoo_1.6-4
>
> loaded via a namespace (and not attached):
> [1] grid_2.11.1    lattice_0.18-8 tools_2.11.1
>
> Can someone explain the unexpected results or is it just broken?
>
> Thanks,
>
> -Mark-
>
>          [[alternative HTML version deleted]]
>
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-- 
Brian G. Peterson
http://braverock.com/brian/
Ph: 773-459-4973
IM: bgpbraverock