Glossary
What the numbers mean
Every term the analysis uses, defined in plain English — with the way each one is commonly misread, which is usually the more useful half.
12 of 12 terms
- Maximum drawdown Risk
The largest percentage decline from any high-water mark to the low that followed it, measured across the whole history. It answers a question an average return cannot: how bad did it actually get for someone holding this the entire time.
Commonly misread: It is a historical worst, not a limit. A portfolio that has never fallen more than 12% has not promised that it will not fall 40% next year.
- Current drawdown Risk
The same measurement as maximum drawdown, taken at the latest close rather than at the worst one. Zero means today is a new high.
Commonly misread: A small current drawdown says nothing about the size of past ones. Recovering from a 50% fall and never having had one look identical here.
- Volatility Risk
How widely daily returns scatter around their own average, scaled to a yearly figure. It is the denominator of the Sharpe ratio, shown on its own because the size of the swings is worth knowing separately from what they bought.
Commonly misread: Volatility is not risk, it is variability. A steady slide to zero has low volatility the whole way down.
- Correlation Portfolio
The Pearson correlation of two holdings' daily returns. +1 is lockstep, 0 is unrelated, −1 is exact opposition. It is where concentration hides: eight tickers that all correlate at 0.9 are closer to one position than to eight.
Commonly misread: Correlations are not stable. Holdings that look independent in calm markets have a habit of converging on +1 in a crash, which is precisely when the diversification was supposed to help.
- Annualized return Return
The compound annual growth rate implied by the first and last values of the portfolio. Compounding matters: doubling over two years is 41.4% a year, not 50%.
Commonly misread: It reads the endpoints and ignores everything in between, so it cannot distinguish a smooth climb from a crash followed by a recovery.
- Cost basis Portfolio
The total paid for the position, tracked here as a running average across every buy. Selling reduces the basis proportionally and banks the difference as realized profit.
Commonly misread: This is average cost, not FIFO or specific-lot accounting. It answers whether you are up on a position; it is not a figure to put on a tax return.
- Unrealized gain Portfolio
Market value at the last close minus cost basis. It moves every day the price does and becomes realized only when you sell.
- Realized gain Portfolio
For each sell, the price received minus the average cost of the shares sold at that moment. Unlike unrealized profit, it does not move again.
- Risk-free rate Return
The hurdle the Sharpe ratio measures excess return against, conventionally a short-dated government bill. It is a setting rather than a constant because the right value moved from near zero to above five percent within a few years, and a Sharpe ratio computed against the wrong era is simply wrong.
- End-of-day price Data
The only price data this tool uses. Intraday highs and lows are never fetched, so a drawdown measured here is a close-to-close figure and will be shallower than one measured tick by tick.
- Trading day Data
Daily figures are annualized by 252, the conventional count of trading days in a year. Weekends and market holidays produce no price bar and are simply absent from the series rather than carried forward as flat days.
For the formula behind each of these rather than the definition, see the methodology.