Risk-Reward Analysis with ROMAD
A higher total return does not automatically mean a better investment. VizWealth includes ROMAD (Return Over Max Drawdown) to help advisors and clients evaluate whether the return they are receiving is worth the risk they are taking.
What is ROMAD?
ROMAD answers the question: how much upside am I getting for each percentage point of downside I have had to weather?
ROMAD = Total Return ÷ Maximum Drawdown
A higher ROMAD means better return per unit of risk. It recalculates automatically for whatever date range is currently visible on the chart.
It is conceptually similar to the Sharpe ratio (return divided by standard deviation), but uses maximum drawdown as the risk measure instead — which many investors find more intuitive, since drawdown reflects the actual loss experience rather than a statistical abstraction.
Example: QQQ vs. TQQQ
This example compares QQQ (NASDAQ 100 ETF) against TQQQ (ProShares UltraPro QQQ), a 3× leveraged version.
Enter the tickers
Type QQQ and TQQQ into the ticker box and align the charts.
Read the commentary
Click Commentary on any ticker to see a plain-language description. TQQQ targets 3× the daily returns of the NASDAQ 100 — note that this is daily rebalancing, which causes compounding effects over time.
Compare the drawdowns
| Event | QQQ drawdown | TQQQ drawdown (approx. 3×) |
|---|---|---|
| 2022 sell-off | −35% | −79% |
| 2023 correction | −22% | −65% |
TQQQ's larger absolute return comes at the cost of dramatically larger drawdowns. Clients who held TQQQ in 2022 experienced a near-total wipeout.
Compare ROMAD
Even though TQQQ has a higher total return over certain periods, QQQ consistently shows a better ROMAD. The leverage is not delivering more return per unit of risk — it is delivering more risk for a similar level of net return.
A leveraged fund can be replicated manually: borrow capital and invest it in the underlying index. The leverage itself is not special. What matters is the risk-adjusted return.
Using ROMAD in client conversations
ROMAD is particularly useful when a client asks: "Why not just use the 3× fund?" Rather than arguing in the abstract, you can pull up the ROMAD comparison in VizWealth and show that the risk-adjusted return does not justify the additional volatility.
It also works across any set of investments — use it to screen a shortlist of funds and quickly identify which ones are delivering the most return for each unit of drawdown risk.