Bacon in Practical Portfolio Performance Measurement and Attribution distinguishes between the two, specifying that "Maximum drawdown represents the maximum loss an investor can suffer in the fund buying at the highest point and selling at the lowest" and Largest Individual Drawdown to be "the largest individual uninterrupted loss in a return series". This is clear, however, other sources seem to be unclear or outright disagree. For example, Investopedia defines maximum drawdown as a "maximum observed loss from a peak to a trough of a portfolio" and doesn't mention Largest Individual Drawdown. CFI seems to agree, though they seem to emphasize (based on the graph provided) that a new peak must be reached if a drawdown is to be considered a maximum drawdown. Some sources seem to use the largest individual drawdown as a maximum drawdown (here, PerformanceAnalytics R package).
Questions the I have are:
- What is the difference between Maximum Drawdown and Largest Individual Drawdown?
- Does the new peak need to be reached for a drawdown to be considered for maximum drawdown (even if the non-peaked drawdown is larger than the peaked drawdown) as Wikipedia would suggest?
- Can trough value be before the peak value (as per what Investopedia's formula seem to suggest)?
- What is the commonly used definition of maximum drawdown?