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Calmar Ratio


Calmar Ratio is a metric that measures the risk-adjusted performance of a portfolio. It is similar to the Sharpe ratio but uses the maximum drawdown as a measure of risk.

The Calmar ratio is a measure of risk-adjusted returns. Together with Sharpe and Sortino ratios, it is one of the most popular indicators for evaluating the performance of investment funds and portfolios. The principal difference between the Calmar ratio and other Sharpe-like ratios is that it is calculated using the maximum drawdown as a risk measure.

The maximum drawdown for many investors is a more understandable measure of risk than the volatility (standard deviation) used to calculate the Sharpe ratio. It represents the largest drop in the price of an asset from its peak value over a certain period.

What the Calmar Ratio Results Mean

When comparing investment funds or portfolios with each other, investors should consider both the profitability of the investment and the risks associated with it. And funds that show higher returns without taking on greater risks are considered to be better investments. The Calmar ratio is designed to help understand whether a higher return is associated with a higher risk or not.

For example, suppose the value of the Calmar ratio for a portfolio or fund is 2. In that case, this means that for the selected period, the annualized return exceeds two times the maximum drawdown.

  • Negative Calmar ratio means the risk-free rate is higher than the portfolio's return. Values ​​below zero do not convey any meaningful information.
  • The Calmar ratio from 0 to 1.0 indicates that the portfolio's profit does not exceed the maximum drawdown for a given period.
  • The Calmar ratio of more than 1.0 shows that the profit slightly exceeds the drawdown. This investment could be considered risky.
  • The Calmar ratio above 3.0 shows that the profit significantly exceeds the drawdown. It could be an indicator of a sound investment.

All things being equal, a fund or portfolio with a higher Calmar ratio is the preferred investment.

Calmar Ratio Formula


Calmar Ratio Formula
Where:
Annualized portfolio return

 — Annualized portfolio return

Annualized risk-free rate

 — Annualized risk-free rate

Maximum drawdown

 — Maximum drawdown

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Calmar Ratio Settings


Quarterly

%

Rolling Calmar Ratio Chart


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