Calmar Ratio
In short
Annualized return divided by maximum drawdown — long-term risk efficiency
Calmar asks how much return you earned per dollar of maximum pain. If a portfolio returned 15% annually over the period measured but suffered a 30% drop from peak to trough at its worst point, the Calmar ratio is 0.5 — half a percent of return for every percent of that worst loss.
Calmar ratio divides a portfolio's annualized return by its maximum drawdown — the largest peak-to-trough decline — typically measured over a trailing 3-year window, though shorter or longer periods are used too. Because it's built around one worst episode rather than the full spread of returns, it reads more intuitively than a volatility-based measure like the Sharpe ratio for investors who care about worst-case pain, but one unusually bad stretch can dominate the number and make an otherwise strong record look weak. The ratio is period-sensitive: computing it over 1, 3, or since-inception years can produce very different results depending on whether that window captures the strategy's worst drawdown, so Calmar figures are only comparable across strategies measured over the same lookback.
Formula
Calmar = Annualized Return ÷ Maximum DrawdownThresholds
- <0.5
- Poor — high drawdowns relative to returns
- 0.5-1
- Acceptable
- 1-2
- Good
- >2
- Excellent
Related concepts
- Sharpe Ratio — Sharpe ratio measures how much return you get for every unit of risk you take. A Sharpe of 1.0 means for every 1% of risk, you earn 1% return above the risk-free rate. Higher is better.
- Maximum Drawdown — If your portfolio hit $10,000 then fell to $6,000 before recovering, the max drawdown is 40%. It measures the worst experience a real investor would have endured.
- Sortino Ratio — Sharpe ratio penalizes all volatility, even upside gains. Sortino only penalizes bad volatility (downside). A fund that has big gains but small losses looks better on Sortino than Sharpe.