Martin Ratio Calculator
The Martin Ratio Calculator is an essential tool designed for investors who seek a deeper understanding of their portfolio's performance.
What is the Martin Ratio?
The Martin Ratio is an advanced metric that helps investors assess the risk-adjusted return of their investments. Unlike standard performance measures, the Martin Ratio uses the Ulcer Index as a risk measure, offering a more precise view of the investment's performance. It is calculated by dividing the investment's excess return over the risk-free rate by Ulcer Index, which represents the length and the severity of price drawdowns. That way, the Martin Ratio punishes downside volatility while rewarding upside volatility, providing a more comprehensive view of the investment's performance.
Input your portfolio's data into the calculator below to generate a rolling Martin Ratio chart and visualize the risk-adjusted performance over time.
Martin Ratio Formula
Where:
Return of portfolio
Risk-free rate
Period length
Drawdown from the previous peak on day t
Your portfolio is currently empty. You can import symbols, add them manually, or select from an existing portfolio.
Martin Ratio Settings
%
Martin Ratio Chart
Click Calculate to get resultsWhat the Results Mean
Interpreting the Martin Ratio Value
High Martin Ratio: A high Martin Ratio indicates that the investment has generated substantial returns above the risk-free rate with minimal downside risk. This suggests a strong risk-adjusted performance.
Low Martin Ratio: A low Martin Ratio suggests that the investment has generated low returns or has taken on significant downside risk to achieve its returns. This indicates a weaker risk-adjusted performance.
Analyzing the Rolling Martin Ratio Chart
Consistency: Look for consistency in the Martin Ratio over time. A consistently high ratio indicates a stable investment strategy that manages downside risk well under various market conditions.
Volatility: Significant fluctuations in the Martin Ratio can indicate periods of heightened risk or poor performance relative to downside risk. Identifying these periods can help in fine-tuning the investment strategy to mitigate similar risks in the future.
Using the Results for Portfolio Optimization
Risk Management: If certain investments consistently show a low Martin Ratio, consider whether they align with your risk tolerance and investment objectives. It might be worth exploring alternatives that offer a better risk-adjusted return profile.
Diversification: Analyze the Martin Ratios of individual portfolio components to assess diversification. Ideally, portfolio components should exhibit non-correlated behavior, contributing to a more robust overall Martin Ratio. You can use the asset correlation tool to identify weakly correlated assets.
Strategic Adjustments
Tactical Shifts: Use the insights from the Martin Ratio analysis to make tactical shifts in your portfolio. This could involve reallocating capital towards assets with higher Martin Ratios during certain market conditions.
Performance Benchmarking: Compare the Martin Ratio of your portfolio against benchmarks or peers to gauge its competitive position. A higher Martin Ratio can validate your investment approach, while a lower ratio might signal that further investigation and adjustment is needed.
Comparison with Other Ratios
Sharpe Ratio: Measures excess return per unit of total volatility. Good for overall risk-return analysis.
Sortino Ratio: Similar to the Martin Ratio, focusing on downside risk, but differs in its calculation of downside deviation.
Treynor Ratio: Assesses returns based on systematic risk alone, using beta instead of total or downside volatility.