Maximum drawdown and Sortino ratio of your DEGIRO portfolio: downside risk explained

Maximum drawdown measures the largest decline from an earlier peak to the lowest point afterwards, while the Sortino Ratio weighs your return against only the downside volatility instead of total volatility — together with average recovery time and Value at Risk (95% / 1-day) they show how painful and how long a loss actually was.

Average return hides the roughest stretches

Say your portfolio is up 8% a year after five years. That number says nothing about how the ride felt — whether you spent a year 40% underwater waiting to recover, or whether the return built up calmly and steadily. To see that difference, you look at downside risk: how deep it went, how long it lasted, and what it actually cost you.

Maximum drawdown: the biggest fall from the peak

Maximum drawdown is the largest percentage your portfolio declined from an earlier high point to the lowest point afterwards, before a new peak was reached. A drawdown of -35% means your portfolio value, at its lowest, was 35% below its most recent peak — regardless of what the return over the full period eventually turned out to be.

Anyone holding growth ETFs like ARK Innovation at the end of 2021 saw drawdowns of more than -75% — and, at the time of writing, is still waiting for a full recovery. Numbers like that are not the exception in concentrated growth portfolios; they show exactly why maximum drawdown measures something different from average return.

Uncomfortable. But honest. It simulates the worst possible entry moment and shows what you could actually have lost if you’d invested right before the fall.

Maximum drawdown is only ever one measurement, though: calculate it on daily prices instead of monthly prices and the number quickly looks deeper — so never compare two drawdowns calculated at different frequencies. The deeper the fall, the more disproportionate the recovery: a 50% loss needs a 100% gain just to break even; at -20% that’s “only” 25%, at -60% it’s already 150%. That immediately explains why recovery time doesn’t scale linearly with the depth of the drawdown.

Sortino Ratio: risk that only counts the downside

The well-known Sharpe Ratio divides return by total volatility — including the months you shot up. That’s odd: nobody experiences a strong rally as “risk”. The Sortino Ratio fixes this by only including downside deviation in the denominator. Two portfolios with the exact same Sharpe Ratio can therefore have a completely different Sortino Ratio, if one mostly swings upward and the other oscillates symmetrically.

A higher Sortino Ratio means: more return per unit of “risk that actually matters”.

What counts as a good Sortino ratio?

As a rule of thumb: a Sortino Ratio above 1 is reasonable, above 2 is strong. Anything below that means the return doesn’t offer much compensation for the downside risk you’re accepting to earn it.

Recovery time and Value at Risk: how long, and how bad can it get?

• Average recovery time — the number of months your portfolio historically needed to get back to its previous level after a drawdown. A -20% drawdown that recovered in two months feels very different from the same -20% that drags on for two years.
• Value at Risk (95% / 1-day) — the estimated loss you, with 95% confidence, shouldn’t exceed on any given day. It doesn’t tell you the worst possible day, but it does tell you what a “normal bad day” looks like for your portfolio.

Which position caused the decline?

Which position hurt the most? A drawdown percentage alone doesn’t tell the whole story — you want to know which positions caused the hit. Was it one oversized position in a volatile stock, or a broad market decline that hit everyone? That distinction determines whether the fix is diversification, position sizing, or simply patience. Concentration in a handful of positions is often the underlying cause of a sharp fall like this — see also ETF overlap and concentration and portfolio risk and diversification for how to spot that in advance.

How ClearAnalyser calculates this for you

ClearAnalyser calculates your Sortino Ratio, maximum drawdown, average recovery time and Value at Risk (95% / 1-day) live, visualises the full drawdown history in a chart, and shows in a “Top Drawdowns & Recovery Analysis” card exactly which positions were responsible for your biggest declines. Which other tools show drawdown and risk figures is listed in the DEGIRO portfolio tracker comparison.

Sources: Sortino Ratio — Investopedia · Value at Risk (VaR) — Investopedia