Recovery Factor

Definition

The Recovery Factor is a risk-adjusted metric that measures how well an investment recovers from drawdowns by comparing total return to the maximum drawdown. It helps assess resilience and long-term sustainability.

Formula

$\text{Recovery Factor} = \frac{\text{Total Return}}{\text{Max Drawdown}}$

Where:

• Total Return = cumulative return over the period
• Max Drawdown = largest percentage decline from peak to trough