Risk and return · updated October 21, 2026
What is the Ulcer index and how is it calculated
The Ulcer index measures how stressful an investment is: how far the price fell below its previous peak and how long it stayed there. The name comes from the ulcer a stock can give you when it sits at a loss for months.
The Ulcer index formula
- Drop from the peak
- Each day, how many percent the price sits below its highest level so far.
- The squares
- Large drops count much more than small ones.
Worked example
Over a year, a stock sat on average 5-15% below its peak, with one month at −20%.
A stock that rises steadily, never dipping below its peak, has an index close to zero.
How to read the Ulcer index
Unlike volatility, it does not punish gains, only drops and how long they last.
When the Ulcer index can fool you
It depends on the period: a year without any correction gives a very low index that will not necessarily repeat.
Related terms
Questions about the Ulcer index
Why square the drops?
So that a 20% drop counts four times as much as a 10% one, not just twice. That is also how it feels to the investor.
These explanations are for information only. They are not a recommendation to buy or sell.
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