Ulcer Index - UI

Ulcer Index - UI

An indicator developed by Peter G. Martin and Byron B. McCann that is used to measure the riskiness of investments such as securities, commodities, indexes or mutual funds. It is created by factoring in the depth and duration of drawdowns from recent peaks. A large UI value indicates that the security represents undue risk and an investor who holds it will likely need to wait a longer period of time for the investment's price to recover back to its recent highs.

Notes:

This tool is often used in conjunction with other risk measurements such as standard deviation. Investors who are risk averse should consider staying away from securities that have high UI values because these securities, if they experience a severe decline, are unlikely to recover in the near future.

Since the Ulcer Index measures change from a recent peak, it is more practical to think of it as a short-term risk measure.

See also: Drawdown, Risk Averse, Risk Tolerance, Standard Deviation, Volatility