StockSignal
Drawdown Risk
Story type: Situational
Three risk signals describe drawdown profile: the ulcer index is elevated, drawdown from peak is significant, and historical volatility provides context. Together these characterize downside risk from multiple angles.
State
Drawdown risk profile
Emergence
Multiple measures of drawdown and downside risk. When the ulcer index is elevated, current drawdown from peak is significant, and historical volatility provides context, the stock shows elevated downside risk characteristics. This describes a risk profile where drawdown pain has been or could be significant.
Limits
This story identifies drawdown risk characteristics, not future loss prediction or recovery timing. It does not predict further decline, assess whether drawdown is over, or indicate risk tolerance suitability. Past drawdown patterns may not predict future ones.
Explanation
Each signal represents an independent observation about drawdown risk: Ulcer Index measures drawdown depth and duration combined—the 'pain' of holding through declines. Elevated readings indicate the stock has caused significant drawdown distress. Drawdown from Peak measures current distance from the highest price. Significant drawdown indicates the stock has declined substantially from its maximum. Historical Volatility measures return dispersion. Combined with drawdown measures, it provides context for the risk environment. When all three indicate elevated risk, they describe a stock with significant drawdown characteristics—a risk observation, not a prediction.
Interpretation
This story identifies drawdown risk characteristics, not future losses. It does not predict whether drawdown will continue or recover, assess investor suitability, or guarantee future risk levels. Stocks with past drawdowns can stabilize or decline further.
Required Signals
ulcer-index
Downside volatility based on drawdown depth from recent highs
drawdown-from-peak
Percentage decline of current price from recent peak
historical-volatility
Annualized standard deviation of price returns over a 20-week window