Drawdown recovery
Why does recovery need more than the loss rate?
Losses and recovery returns are not symmetric. Here is the math.
After a 50% loss, only half of the principal remains. To return to the original amount, the remaining half must double, so the required recovery return is 100%.
3 min read
Loss and recovery are asymmetric
If 1,000,000 falls by 50%, 500,000 remains. A 50% return from 500,000 only reaches 750,000.
To get back to 1,000,000, the remaining 500,000 must gain another 500,000. That is a 100% return from the reduced base.
Deeper losses require rapidly larger gains
A 10% loss needs about 11.11% to recover, while an 80% loss needs 400%.
The smaller the remaining base, the larger the required return becomes.
What recovery duration means
ReturnLab estimates how many days it would take for the remaining amount to recover if a constant daily return repeats.
This is a risk-management lens. It shows why avoiding deep drawdowns matters.