VaultCharts
efficiency Metric

What Is Recovery Factor?

Recovery factor is net profit divided by maximum drawdown, measuring how much profit is generated per unit of worst loss.

Quick Answer

Recovery factor is net profit divided by maximum drawdown, measuring how much profit is generated per unit of worst loss.

What Does Recovery Factor Measure?

Recovery factor is total net profit (over the period) divided by the absolute value of maximum drawdown. It answers: for every dollar of drawdown, how much profit did the strategy make overall? It complements Calmar (which uses annualized return) by using cumulative net profit, so it is sensitive to length of test period. Useful for comparing strategies over the same period.

Formula:
Recovery Factor = Net Profit / |Max Drawdown|

Typical range: 1.0–5.0+; period-dependent

How to Interpret Recovery Factor

  • 1RF > 2–3 often considered good; higher is better
  • 2Depends on length of test: longer period can increase net profit and RF
  • 3Use same period when comparing recovery factors
  • 4Low RF with high return might mean high drawdowns relative to profit

How to Use Recovery Factor in Backtesting & Portfolio Analysis

✓Compare strategies over same backtest period
✓Assess “efficiency” of profit relative to pain (drawdown)
✓Screen strategies that profit but with excessive drawdown
✓Report alongside max drawdown and Calmar

Common Mistakes to Avoid

✕Comparing RF across different time periods without normalization
✕Ignoring drawdown duration (RF is blind to time under water)
✕Using RF alone without Sharpe or Sortino for risk-adjusted view
✕Overfitting to maximize RF in backtest

Backtest with Recovery Factor in VaultCharts

VaultCharts includes backtesting with built-in and custom strategies. Analyze Recovery Factor, Sharpe ratio, max drawdown, and more—all with your data stored locally.

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Related Backtesting Metrics

Max DrawdownCalmar RatioProfit FactorSharpe Ratio