- Also known as:
- ulcer, ulcer index
What is the Ulcer Index?
Ulcer Index measures the depth and duration of drawdowns. It tracks how far prices fall below their prior peaks over time, then compresses that whole drawdown path into one number.
Unlike volatility, Ulcer Index only counts downside pain. A value of 0 means the asset never dipped below its prior peak.
Ulcer index calculator
Ulcer Index Calculator
Calculate Ulcer Index from a drawdown series (percent).
Ulcer index formula
UI = sqrt(mean(drawdown^2))
Step-by-step example
- Drawdowns: 0%, 2.5%, 5%, 1%, 4.2%
- Average of squared drawdowns = 9.98
- Ulcer Index = sqrt(9.98) = 3.16
Lower is better. A higher value means deeper or longer drawdowns.
How to interpret Ulcer Index
- Lower is better: it means drawdowns are shallow or brief.
- Higher values mean deeper or more persistent drawdowns.
- Compare Ulcer Index only across the same window and sampling frequency.
How we calculate Ulcer Index at Gale Finance
We compute drawdowns from daily closing prices, square each drawdown value, average them, and then take the square root. This aligns with the standard definition and emphasizes sustained drawdown pain over short spikes.
Pair Ulcer Index with max drawdown and Calmar ratio to get both severity and efficiency of returns.