RISK-01

Drawdown Control

Monitors portfolio drawdown in real-time. When drawdown exceeds threshold, reduces position proportionally. Similar to CPPI dynamic insurance. Can be used as overlay on any strategy.

Risk ManagementDefensiveOverlay

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At a glance

Best onAny underlying strategy

Signal frequencyDaily

Typical holding periodDays

Asset classesIndex, Commodity, FX

Markets tested10

Data through2026-11-10

What the backtest shows

Beat buy-and-hold on 4 of 10 markets by annual return over 5 years.
Had a smaller maximum drawdown than buy-and-hold on 6 of 10 markets.
Best market by Sharpe ratio: GLD (Sharpe 1.00, CAGR 16.2%).
Weakest market: UNG (Sharpe -0.32, CAGR -10.7%).

Equity curve

Drawdown Control Buy & hold · SPY, 2010-01-04 → 2026-11-10, growth of 1

Score and risk profile

Arena Score: 68.9SPY, 5 years

Return quality · 30%78

Drawdown control · 25%28

Consistency · 20%79

Robustness · 15%90

Significance · 10%92

Each bar is a percentile against every strategy on the same market and window (100 = best).

Time in market100%

Ulcer index11.6%

Longest drawdown787 days

Daily VaR (95%)-1.53%

Probability Sharpe > 092%

Beta vs buy & hold0.81

Alpha (annual)-0.6%

Positive months60%

CAGR after 10 bp costs8.4%

Deflated Sharpe (luck-adjusted)48%

CAGR, 90% bootstrap range-2.2% to 19.4%

Max drawdown, 90% bootstrap range-36.8% to -13.3%

How it held up in sell-offs (SPY)

Period	Strategy	Buy & hold
Q4 2018 sell-off	-18.3%	-19.2%
COVID crash (Feb–Mar 2020)	-27.8%	-33.7%
2022 bear market	-23.9%	-24.5%
Market above its 200-day average (annualized) · 81%	+12.5%	+12.5%
Market below its 200-day average (annualized) · 19%	+6.3%	+19.8%

Sell-off dates follow the US stock market. Above/below the 200-day average uses the previous day's position, so there is no look-ahead.

Out-of-sample check (SPY)

Check	Value
Chosen parameters on their 3-year training windows (average Sharpe)	0.88
Same parameters in the following 6 months, when traded (Sharpe)	0.87
Default parameters over the same months (Sharpe)	0.86
Parameter re-selections / changes	28 / 6
Parameter settings with a positive Sharpe (full history)	9 of 9
Sharpe across settings: worst / median / best	0.78 / 0.79 / 0.80

Out-of-sample periods start on 2013-01-04. Training-window figures are flattered by picking the best of 9 settings; the out-of-sample figure is what the strategy actually earned. A large drop, or a result that depends on one setting, points to overfitting. How walk-forward testing works.

Results by market (5 years)

Market	CAGR	Buy & hold CAGR	Sharpe	Max drawdown	Buy & hold max DD	Volatility	Arena Score
GLDSPDR Gold Shares	16.2%	16.4%	1.00	-24.4%	-28.3%	16.7%	72
SLViShares Silver Trust	16.6%	15.2%	0.71	-35.6%	-57.8%	27.8%	75
DBAInvesco DB Agriculture	8.3%	8.8%	0.67	-16.2%	-15.9%	13.4%	77
SPYSPDR S&P 500	8.7%	11.6%	0.63	-25.8%	-24.5%	14.8%	69
DBCInvesco DB Commodity Index	8.6%	10.8%	0.55	-31.8%	-27.3%	17.2%	69
BTC-USDBitcoin	14.6%	2.6%	0.47	-35.8%	-75.9%	27.0%	82
USOUnited States Oil Fund	4.3%	20.2%	0.27	-50.9%	-36.2%	30.9%	43
ETH-USDEthereum	-6.0%	-15.1%	-0.04	-50.8%	-79.0%	26.1%	36
EURUSD=XEUR/USD	-0.9%	-0.7%	-0.09	-15.6%	-17.2%	7.0%	38
UNGUnited States Natural Gas	-10.7%	-30.7%	-0.32	-59.1%	-93.3%	25.3%	35

Strategy metrics use daily returns without trading costs. Buy-and-hold figures are for the same market and window. Rows are sorted by Sharpe ratio.

SPY across time windows

Window	Total return	CAGR	Sharpe	Sortino	Max DD	Win days	Trades
1 year	+11.1%	11.1%	0.95	1.30	-8.9%	52%	3
3 years	+71.3%	19.7%	1.33	1.66	-18.4%	57%	18
5 years	+51.9%	8.7%	0.63	0.83	-25.8%	53%	235
Full history	+508.3%	11.3%	0.80	0.97	-28.0%	55%	460

Rules

Entry

Full position when drawdown < threshold
Reduce by scale factor when drawdown exceeds

Exit

Gradually restore as drawdown recovers

Indicators

Rolling maximum price
Current drawdown

Inputs

Max_Drawdown = 0.10
Scale = 0.5
Recovery_Threshold = 0.5

Position sizing

Dynamic based on drawdown

Risk controls

Hard drawdown limit

Strategy evidence

Only available, validated bundles appear below. Missing evidence is not a passing validation result.

Evidence coverage

10 / 10 declared strategy–market pairs validated

Notes

Protects against tail risk
May reduce returns in V-shaped recoveries
Similar to constant proportion portfolio insurance

Related strategies

MACRO-03 · SPY 5Y Sharpe 0.56Flight to Quality MOM-11 · SPY 5Y Sharpe 0.58Momentum Crash Protection REG-01 · SPY 5Y Sharpe 0.69Regime Switch RISK-03 · SPY 5Y Sharpe 0.45Stop Loss Overlay RISK-04 · SPY 5Y Sharpe 0.44Trailing Stop Strategy TAIL-01 · SPY 5Y Sharpe -0.16Crisis Alpha

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Backtests are historical simulations on daily data and do not include commissions or slippage. They do not guarantee future results and are not investment advice. See the methodology for how every strategy is tested.