Exercise

# Historical drawdown

The stock market tends to rise over time, but that doesn't mean that you won't have periods of **drawdown**.

Drawdown can be measured as the percentage loss from the highest cumulative historical point.

In Python, you can use the `.accumulate()`

and `.maximum()`

functions to calculate the running maximum, and the simple formula below to calculate drawdown:

$$ \text{Drawdown} = \frac{r_t}{RM} - 1$$

- \(r_t\): Cumulative return at time t
- \(RM\): Running maximum

The cumulative returns of USO, an ETF that tracks oil prices, is available in the variable `cum_rets`

.

Instructions

**100 XP**

- Calculate the running maximum of the cumulative returns of the USO oil ETF (
`cum_rets`

) using`np.maximum.accumulate()`

. - Where the running maximum (
`running_max`

) drops below 1, set the running maximum equal to 1. - Calculate
`drawdown`

using the simple formula above with the`cum_rets`

and`running_max`

. - Review the plot.