What is Calmar Ratio?
Annualized return divided by maximum drawdown, a return-to-pain measure.
Formal Definition
The Calmar ratio divides a strategy's annualized return by its maximum drawdown over the same period, typically three years. Unlike the Sharpe ratio, which uses volatility as the risk denominator, the Calmar ratio uses worst-case loss, making it popular for evaluating trend-following and managed-futures strategies where deep drawdowns matter most.
In Simple Terms
It compares how much a strategy earns each year against the worst loss it put you through. A high number means good rewards without a gut-wrenching crash along the way.
Example
A strategy returning 20% annually with a maximum drawdown of 10% has a Calmar ratio of 2.0.