GlossaryAdvanced
Ulcer Index
A volatility measure focused specifically on downside risk — the depth and duration of drawdowns — rather than treating up and down moves symmetrically.
The Ulcer Index, developed by Peter Martin, measures volatility specifically from downside price movement — the depth and duration of drawdowns from recent highs — rather than treating upward and downward price swings symmetrically, as standard deviation does.
This makes it a closer match to how many investors actually experience risk, since a volatile rally and a volatile decline feel very different in practice, even though standard deviation measures them identically. See Kaavon's dedicated Ulcer Index article for the full calculation.
Examples
- An asset that only ever moves up in large swings has a low Ulcer Index, despite having high standard-deviation volatility, since the Ulcer Index only penalizes drawdowns.
- The Ulcer Index is commonly used to compare how "painful" different assets' historical drawdowns have actually been, not just how large their price swings were.