What's the recovery time output?

Given current drawdown state, the expected time (in trade days) until you return to a new high. The tool reports both mean recovery time and the 95th-percentile worst case. For shallow drawdowns (1-5%), expected recovery is short; for 20%+ drawdowns, the tail extends a long way.

How many observations do I need?

At least 250 trade days for stable transition probabilities. Below that, the drawdown-tier transitions are too noisy. The tool flags low-N estimates with a warning.

What's a common mistake when using Drawdown-Recovery Markov Simulator?

Using a Gaussian assumption when the strategy has fat tails. Recovery times are highly sensitive to skew + kurtosis; Cornish-Fisher correction is required for honest results.

How do non-stationary regimes break the model?

Reading median recovery as the planning number. p50 is half the time; size patience to p75 or p90 if you can't tolerate the longer tail.

Risk & Portfolio Construction Calculator Guide

How to use Drawdown-Recovery Markov Simulator

Time to recover from an N% drawdown given monthly Sharpe, skew, and kurtosis. Cornish-Fisher Monte Carlo, percentile distribution of recovery months — the answer to 'how long am I underwater' rather than 'how deep'.

5 STEPSPublished May 12, 2026Live Content

By Orbyd Editorial · AI Fin Hub Team

Best Next MoveCalculators

Drawdown-Recovery Markov Simulator

Time to recover from an N% drawdown given monthly Sharpe + skew + kurtosis. Cornish-Fisher Monte Carlo, percentile distribution of recovery months.

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On This Page

Overview 5 steps Scenarios FAQ

What It Does

Use the calculator with intent

Investors and PMs who want to size the patience required to ride out a drawdown given the strategy's risk profile.

Interpreting Results

p50 recovery time is the median; p95 is the 'patience needed' number. Heavy left tails (negative skew, fat kurtosis) shift the distribution dramatically to the right — recovery from a 20% drawdown can easily take 5 years for some real strategies.

Input Steps

Field by field

1

Upload data

Upload your equity curve (daily values or trade-by-trade P&L).
2

Set parameters

Set the drawdown tier boundaries (default: 0-5%, 5-10%, 10-20%, 20%+). Tighter tiers give more granular transition probabilities but need more data.
3

Run calculation

Run the model. Read expected recovery time per drawdown tier, plus 95th-percentile worst-case recovery.
4

Compare results

Compare against your strategy's max acceptable drawdown duration. If 95th-percentile recovery exceeds your patience, the strategy is mis-sized for your psychology.
5

Re-run

Re-run on subset windows to test stability. Recovery times that change dramatically across regimes signal regime sensitivity in the underlying strategy.

Common Scenarios

Use realistic starting points

Modest drawdown, high-Sharpe strategy

Drawdown

10%

Sharpe

1.5

Median recovery 6-12 months; p95 within 18 months. Recoverable within an annual reporting cycle.

Large drawdown, lower-Sharpe strategy

Drawdown

25%

Sharpe

0.8

Skew

-0.5

Median recovery 2-4 years; p95 well past 5 years. This is the 'lost decade' territory — investor patience required exceeds typical fund-rebalancing horizons.

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FAQ

Questions people ask next

The short answers readers usually want after the first pass.

Drawdowns aren't memoryless — the deeper the drawdown, the longer the typical recovery, with a non-linear relationship. Markov chains capture the state-conditional transition probabilities cleanly. The tool's chain has states for {flat, drawdown depth tier 1-N}, with transition probabilities estimated from your equity curve.