Volatility
The standard deviation of returns. A portfolio with 18% annual volatility swings much more than one at 8%. It treats upside and downside swings the same.
Maximum drawdown
The largest drop from a peak to a later low. It answers the question most people actually care about: how bad did it get? A 60/40 stock-bond mix has historically had smaller drawdowns than 100% stocks.
Recovery time
How many months it took to return to the previous high. Deep drawdowns with long recoveries are harder to live through than sharp but brief ones.
Beta
Beta compares a portfolio's moves to a benchmark. A beta of 1.2 means it has tended to move about 20% more than the market in either direction. It is a historical estimate and can change.
Concentration and correlation
Numbers based on history can miss risks that have not shown up yet. Checking how concentrated the portfolio is, and how closely its holdings move together, fills that gap.
Putting it together
No metric predicts the future. Use them to compare portfolios and understand trade-offs, and combine them with scenario testing to see what specific events might do.
Key takeaways
- Use several metrics: volatility, drawdown, recovery, beta, concentration.
- Drawdown and recovery time describe the lived experience of losses.
- All metrics are backward-looking; pair them with scenario tests.