Calmar ratio (Drawdown ratio)

Calculation and mechanics

The numerator is the CAGR, the compound annual growth rate. The denominator is the Max drawdown in percent, as a positive amount. A CAGR of 12% with a max drawdown of 8%, for example, gives a Calmar ratio of 1.5. The higher the value, the more annualized return was earned relative to the largest observed decline.

For risk the metric relies on the largest observed decline. It therefore reacts strongly to new drawdowns. If a deeper decline than before occurs in the period, the Calmar ratio can change considerably even though the long-term return hardly changes.

The name goes back to the newsletter California Managed Accounts Reports, in which Terry W. Young introduced the metric in 1991. Originally it was calculated over 36 months, today it is also found for other periods.

Calmar ratio = CAGR / |max drawdown in %|

Distinction

The Sharpe ratio relates return to the total volatility. The Sortino ratio instead only takes negative deviations below a defined threshold into account. The Calmar ratio looks at the largest decline actually observed.

A strategy with a mostly calm path but a single sharp drop can therefore show a comparatively high Sharpe ratio and at the same time a low Calmar ratio.

In Foliograph

Foliograph calculates the Calmar ratio from the CAGR and the max drawdown of the realized equity curve. The start capital is the account value closest to the start of the period, from an imported IBKR statement or from TWS. Without such a value Foliograph backs the start capital out of the current account value. Within the period, deposits and withdrawals count toward the invested capital in proportion, as described under CAGR. Foliograph relates the drawdown to this capital, not to the running high.

Changes in the value of open positions are not included. CAGR and Calmar ratio are therefore approximations. Without an account value or without a drawdown in the period, the field under Risk stays empty.

More in the guide: Trading metrics: win rate, profit factor and drawdown · Try for free

Related terms

CAGR (Compound annual growth rate)
Max drawdown (Maximum drawdown, MDD, time in drawdown)
Sharpe ratio (Reward-to-variability ratio)
Sortino ratio (Downside risk-adjusted return)

All terms in the glossary

All market and analytical information is provided for educational and analytical purposes only and does not constitute investment advice or a trading recommendation.