Calmar Ratio
A risk-adjusted return measure dividing annualized return by maximum drawdown, rewarding strategies that grow without deep equity dips.
Formula
Calmar Ratio = Annualized Return / Maximum Drawdown (typically trailing 36 months)
The Calmar ratio measures return per unit of worst-case pain. It divides a strategy's annualized (compound) return by its maximum drawdown over the same window — conventionally the trailing 36 months. A Calmar of 2.0 means the strategy earned twice its deepest peak-to-trough loss each year.
Unlike the Sharpe ratio, which penalizes all volatility, Calmar punishes only the one number traders actually feel: the largest drop from a high-water mark. That makes it popular with CTAs and trend followers, where upside variance is welcome but deep drawdowns end careers and trigger redemptions.
Its weakness is sample dependence — max drawdown is a single historical extreme, so one bad month can dominate the figure and a short or lucky track record can flatter it. Read it alongside Sortino and the full equity curve, never alone.
Example
A fund compounds at 18% per year over three years and its worst peak-to-trough fall in that window was 12%. Calmar = 18% / 12% = 1.5. A second fund returns 24% but suffered a 30% drawdown: Calmar = 24% / 30% = 0.8 — higher headline return, worse risk-adjusted result.
Related Terms
Drawdown
The peak-to-trough decline in account equity from a high point to the subsequent low before a new high is reached.
BeginnerEquity Curve
A chart plotting account balance over time across all trades, showing the overall trajectory and drawdown periods of a trading strategy.
BeginnerMaximum Drawdown
The largest peak-to-trough equity decline recorded over a strategy's full history — the worst-case loss an investor would have experienced.
IntermediateSharpe Ratio
Return per unit of total risk — how much reward you earn for each unit of volatility taken. Higher is better.
IntermediateSortino Ratio
A Sharpe variant that divides excess return only by downside deviation, ignoring upside volatility as a "risk".
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