Volatility and drawdown measure different fears

Every ranking on this site shows both volatility and maximum drawdown. They look like two versions of the same idea. They are not, and the difference decides whether you can actually hold something.

Volatility describes the ride

Volatility is the standard deviation of daily returns, annualised. It answers: how much does this thing typically jump around? It treats an up day and a down day identically — a stock that rockets upward is “volatile” in exactly the same sense as one that collapses.

That symmetry is the limitation. Nobody has ever panic-sold because their position went up too fast.

Drawdown describes the damage

Maximum drawdown is the worst peak-to-trough fall over a period. It answers a different question: what is the largest loss I would have sat through?

The clearest example in our current data is TTD, which shows a -75.8% maximum drawdown over the past year while returning -75.2%. The annual number and the experience of holding it are not the same story.

Why both, always

A fund can have modest volatility and still deliver a brutal drawdown if its bad days cluster — and they do cluster, because markets fall faster than they rise. Volatility computed across a year quietly averages that away.

At the other end, BRK-B ran at 14.7% volatility with a worst drawdown of -9.4% — a materially different holding experience for a comparable position size.

The practical test

Before sizing anything, look at its drawdown and ask honestly whether you would have held through it. Most people overestimate this, which is why portfolios get abandoned at the bottom — not because the strategy was wrong, but because the position was too large to sit through the ordinary bad part of it.

Volatility tells you what to expect on a normal day. Drawdown tells you what to expect on the worst one. The second is the one that ends strategies.

Screenline publishes impersonal, rules-based rankings on a fixed schedule. Nothing here is tailored to your circumstances or a recommendation to buy or sell. Past performance does not predict future results.