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Risk & Portfolio

Calmar Ratio

Also called: Calmar, drawdown-adjusted return

The Calmar ratio divides annualised return by maximum drawdown, judging a strategy by the worst loss investors actually had to sit through. It's popular with managed futures and hedge fund allocators because drawdown, not volatility, is what triggers redemptions. Its weakness is that maximum drawdown is a single historical observation, so the ratio is unstable and improves simply by having been lucky so far.

Formula

Calmar ratio = Annualised return ÷ Maximum drawdown

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