Calmar Ratio

What is the Calmar ratio?

The Calmar ratio is a risk-adjusted performance measure that divides compound annual growth rate (CAGR) by maximum drawdown over the same window, with drawdown taken as a positive magnitude. The conventional window is the trailing 36 months. A higher positive reading means more compound growth per unit of the deepest peak-to-trough loss.

A 12% CAGR and 30% maximum drawdown give 0.40. The same CAGR with a 15% maximum drawdown gives 0.80.

How is the Calmar ratio calculated?

Build a cash-flow-adjusted equity or return-index series. Calculate its compound annual growth rate from the window’s start and end. Track the running maximum, including each current observation, to identify maximum drawdown.

The complete path is needed to locate the ordered peak and trough. The final maximum-drawdown value summarizes their percentage decline.

How to read a Calmar ratio

Review compound return, drawdown depth and drawdown duration together. A 0.40 ratio means the worst loss was 2.5 times the annual compound return: Program A’s 30% drawdown against its 12% CAGR. Evaluate position size and exposure alongside the return and drawdown measures.

Calmar ratio vs Sharpe and Sortino ratios

Sharpe uses average periodic excess return and its standard deviation. Sortino uses average return above a target and target downside deviation. Calmar uses CAGR and maximum drawdown under the convention used here.

An excess-return version subtracts a risk-free rate first. With 3%, the numerator is 12% − 3% = 9%, giving 9% ÷ 30% = 0.30 for A and 9% ÷ 15% = 0.60 for B. Compare each version only with its own kind, since the same program reads 0.40 on CAGR and 0.30 after the risk-free rate.

How the window changes the Calmar ratio

Adding observations to a fixed-start record cannot erase an existing maximum drawdown. The CAGR can change at the same time, so the ratio can rise or fall.

For example, a series starting at 100, reaching 80 and ending year one at 110 has 10% CAGR, 20% maximum drawdown and a 0.50 ratio. If it then rises to 144 at the end of year two, its two-year CAGR is 20%. The drawdown remains 20% and the ratio rises to 1.00.

A rolling window can remove an earlier peak or trough. Recalculate both inputs within each selected window.

Valuation frequency and the MAR ratio

A daily record containing the same month-end observations can have an equal or deeper maximum drawdown than its monthly subset. With the same positive CAGR, that produces an equal or lower Calmar ratio.

Compare the calendar window, valuation basis and return convention consistently. The since-inception version is commonly called the MAR ratio.

Limitations of the Calmar ratio

• One drawdown sets the denominator. Program A’s 0.40 counts only its single 30% fall, so read how long it stayed below the peak and how many times it fell before you size into it.
• Match the window and the marks before comparing. Daily data catches intramonth lows that month-end data skips, and a rolling 36-month window that drops an old trough resets the denominator.
• Rank only positive readings. When CAGR is negative, a deeper drawdown produces a less negative number, and a window with no drawdown has no finite ratio at all.
• Stress the position against a deeper loss than the record holds. Program B’s 15% maximum is the worst decline so far, and every month added to the record keeps or deepens it.

Bottom line

The Calmar ratio compares compound growth with the deepest loss an investor had to sit through. Use it to compare programs with positive returns on the same 36-month window, valuation frequency and return convention, and read it alongside drawdown duration, the full return path and position exposure.