Recovery Factor: formula, interpretation aur limits

Recovery Factor kyon important hai

Recovery Factor yeh dikhata hai ki portfolio ne maximum drawdown ke muqable kitna net gain generate kiya. Jab do portfolios ka return similar ho lekin risk behavior alag ho, tab yeh metric kaafi useful hota hai.

Formula

$Recovery\ Factor = \frac{Net\ Profit}{|Maximum\ Drawdown|}$

Quick example

Agar cumulative return +36% ho aur maximum drawdown -12% ho:

$Recovery\ Factor = \frac{36}{12} = 3.0$

3.0 ka matlab hai: worst loss ke har 1 unit par 3 units return.

Practical interpretation

• 1 se neeche: downside risk ke liye weak compensation.
• 1 se 2: moderate efficiency.
• 2 se upar: return vs drawdown balance zyada strong.

Limits

Yeh metric period selection par depend karti hai aur ek extreme event se distort ho sakti hai. Isliye volatility, drawdown duration aur Ulcer Index ke saath padhein.

Next step

• Wallible app me current portfolio review karein
• Portfolio backtesting me alternatives compare karein
• Related guides: Maximum Drawdown aur Calmar Ratio