Calmar ratio
Quantitative Finance glossary · Quantitative Finance
Definition
Calmar = (Annualised Return)/(|Maximum Drawdown|) — return per unit of worst-case peak-to-trough loss. Preferred by managed-futures and CTA strategies because MDD is the redemption-triggering metric institutional allocators monitor, more so than volatility. Sensitive to the sample window (a longer window almost always contains a deeper drawdown). The Sterling ratio is a close cousin using average annual drawdown.
Calmar ratio in plain English
The Calmar ratio answers a very human question: for every dollar of gut-wrenching loss this investment put me through, how much reward did I actually get? You take the yearly return and divide it by the 'maximum drawdown' — the worst peak-to-valley drop, i.e. how far your account fell from its highest point before recovering. Big investors watch that worst drop closely because a deep plunge is what makes clients panic and pull their money, so a high Calmar means solid returns without a stomach-churning crash. One catch: the longer the time period you measure, the more likely it contains some ugly drop, so the same strategy can look worse simply because you judged it over more years.
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