Ulcer Index Calculator

What the Ulcer Index calculator does

The Ulcer Index calculator measures how painful an investment's declines have been, not how much it moves overall. It looks only at falls from previous peaks and how long they last, and condenses that into one number. The name refers to the stress of watching a portfolio sit below its high-water mark.

Enter a short series of values, such as a fund's balance at the end of five periods, and the tool returns the Ulcer Index, the deepest single drawdown in the series, and the number of data points used.

How the Ulcer Index works

Standard deviation and many other risk measures treat a sharp gain the same as a sharp loss, although upside is not what keeps investors awake. Peter Martin designed the Ulcer Index to measure only the downside.

The tool walks through your series, tracking the highest value seen so far, the running peak. At each point it measures how far the current value sits below that peak as a percentage. At a new high the drawdown is zero; after a fall it is negative, more so the deeper the fall.

Each drawdown percentage is squared, the squares are averaged across all data points, and the square root of the average is the Ulcer Index. Squaring removes the sign, so declines never cancel out, and makes deep drawdowns dominate: one large fall contributes far more than several shallow ones.

Depth and duration

A portfolio that drops sharply but recovers within one period is penalised once. One that drops the same amount and stays underwater for several periods registers a drawdown at every point below its old peak and is penalised repeatedly.

Two investments can share the same maximum drawdown while one recovers quickly and the other languishes for a long time. The Ulcer Index gives the lingering decline a higher score, which a worst-drawdown figure alone cannot do.

How to use the calculator

1. Enter the value of the investment at each of the five points in your series, from earliest to latest.
2. The calculator tracks the running peak, measures each drawdown, and computes the Ulcer Index.
3. Read the Ulcer Index, the deepest single drawdown, and the data-point count.

The values can be a fund's net asset value, an account balance, or an index level. Drawdowns are measured in percentages, so the currency and scale do not matter: a series in the hundreds scores the same as the same shape in the millions.

Reading the result

The Ulcer Index has no fixed good or bad threshold. Compare two funds over the same stretch of history; the one with the lower index gave a smoother ride, with shallower or shorter time below its peaks.

A value close to zero means the series spent almost all its time at or near new highs. A large value means deep drawdowns, long recoveries, or both. The deepest single drawdown helps you tell a high index driven by one severe crash from the same index produced by a long, grinding decline.

Where the Ulcer Index fits

The index is best known as the denominator of the Martin ratio, or Ulcer Performance Index, which divides an investment's return above a risk-free rate by its Ulcer Index. The Sharpe ratio uses total volatility as its risk measure; the Martin ratio uses downside pain, which many investors find more meaningful.

On its own, the index helps compare funds, test strategies, and set expectations. A backtest with attractive returns but a high Ulcer Index is a warning that the path to those returns ran through drawdowns most investors would struggle to hold through.

Common mistakes

• Comparing across different periods. The index only means something relative to another series over the same window.
• Ignoring the length of the series. A handful of points gives a rough sketch; more data points give a fuller picture.
• Chasing a low index at the expense of return. A very low Ulcer Index with weak returns may mean an investment barely moved, so read it alongside performance, ideally through the Martin ratio.

This article is general information only and is not financial advice.

About This Ulcer Index Calculator

Use this Ulcer Index calculator to get an instant estimate based on the figures you enter. Adjust the inputs above to match your situation, or browse all our calculators to plan your next step.