[R-SIG-Finance] corrections vs drawdowns

[Brian G. Peterson]

I think that this is correct.  NASDAQ was still in a drawdown.  NASDAQ
didn't make new all-time highs until 2014.

Some people define 'corrections' as drawdown from most recent peak. 
Charles Schwab's definition is in-line with generally accepted usage:

https://www.schwab.com/resource-center/insights/content/market-correcti
on-what-does-it-mean

The Motley Fool uses a similar but not identical definition:

https://www.schwab.com/resource-center/insights/content/market-correcti
on-what-does-it-mean

quantmod has a 'findPeaks' function, but this is dependent on you
setting a threshold for what defines a peak.

A related Stack Overflow question may provide something in the
direction of what you're looking for to look at drawdown from a recent
peak.

https://stackoverflow.com/questions/14737899/calculate-cumulatve-growth
-drawdown-from-local-min-max

I would certainly be happy to include a 'findCorrections' function in a
later version of PerformanceAnalytics if we could parameterize what
constitutes a 'recent high' for that purpose.

Regards,

Brian


On Tue, 2019-01-08 at 16:36 +0000, Alec Schmidt wrote:
> Thank you Brian,
> geometric=FALSE gave me additional corrections in 2011 and 2012 but
> still no bear market of 2008:
> 
>  
>  08/30/2018 - 12/24/2018 (-11.04%) [80 Days]
> 07/21/2015 - 02/11/2016 (-10.05%) [143 Days]
> 09/17/2012 - 11/15/2012 (-8.42%) [42 Days]
> 03/27/2012 - 06/01/2012 (-9.44%) [47 Days]
> 07/08/2011 - 08/19/2011 (-15.96%) [31 Days]
> 05/02/2011 - 06/17/2011 (-7.59%) [34 Days]
> 02/22/2011 - 03/16/2011 (-6.54%) [17 Days]
> 07/18/2000 - 10/09/2002 (-97.34%) [559 Days]
> Alec
> 
> 
> 
> From: Brian G. Peterson <brian using braverock.com>
> Sent: Tuesday, January 8, 2019 11:17 AM
> To: Alec Schmidt; r-sig-finance using r-project.org
> Subject: Re: [R-SIG-Finance] corrections vs drawdowns
>  
> Alec,
> 
> I suspect that you may wish to start with setting geometric=FALSE in
> your call to findDrawdowns.
> 
> Corrections are usually defined as a peak to trough difference in
> *price*, as a percentage of the peak price.
> 
> So I think you do not want to compound the *returns* in calculating
> your drawdowns.
> 
> Regards,
> 
> Brian
> 
> 
> On Tue, 2019-01-08 at 16:09 +0000, Alec Schmidt wrote:
> > I tried to use the function findDrawdowns() to compile NASDAQ
> > (^IXIC)
> > corrections. For the sample starting on
> > 
> > 2007-01-01, I get the following start -to-trough periods with
> > drawdowns higher than 10%
> > 
> > 08/30/2018 - 12/24/2018 (-23.64%) [80 Days]
> > 07/21/2015 - 02/11/2016 (-18.24%) [143 Days]
> > 09/17/2012 - 11/15/2012 (-10.90%) [42 Days]
> > 03/27/2012 - 06/01/2012 (-12.01%) [47 Days]
> > 05/02/2011 - 10/03/2011 (-18.71%) [108 Days]
> > 11/01/2007 - 03/09/2009 (-55.63%) [339 Days]
> > 
> > 
> > However, if the sample starts on 2000-06-01, I get
> > 08/30/2018 - 12/24/2018 (-23.64%) [80 Days]
> > 07/21/2015 - 02/11/2016 (-18.24%) [143 Days]
> > 07/18/2000 - 10/09/2002 (-73.94%) [559 Days]
> > 
> > i.e. no bear market of 2008...
> > 
> > This is because ^IXIC didn't recover in 2007 from its fall from top
> > in 2000. This implies that various reports on market corrections do
> > not use the max drawdown. Is there consensus (and possibly R
> > scripts)
> > that address this problem?
> > 
> > Thanks! Alec