Performance & Risk Metrics
Ulcer Index
A downside risk metric that measures the depth and duration of portfolio drawdowns, penalizing prolonged periods of decline more heavily than volatility alone.
The Ulcer Index (UI) captures the pain of sustained underwater positions. Unlike standard deviation, which treats upside and downside moves symmetrically, UI looks only at how deep a portfolio falls below its prior peak and how long it stays there. Two strategies with the same volatility can have very different UIs if one recovers quickly and the other lingers below water.
UI is the square root of the average of squared drawdowns over a chosen period, often 252 trading days. Squaring the drawdowns means a single deep decline weighs far more than several shallow ones, so a higher UI points to a portfolio that has spent meaningful time in steep losses rather than mild ones.
Formula
- Di
- Drawdown at period i, computed as the percentage loss from the rolling maximum
- n
- Number of periods in the lookback window, typically 252 trading days