Calmar RatioCR
The Calmar ratio divides annualised return by maximum drawdown. A strategy returning 15% a year with a worst drawdown of 30% has a Calmar ratio of 0.5. It rewards returns earned without deep losses.
The Calmar ratio asks a simple question: how much yearly return did a strategy earn for each unit of its worst Drawdown? It sits beside the Sharpe Ratio and Sortino Ratio but focuses on the deepest fall, which is the number that makes many traders quit.
- Reading time
- 3 min
- Also called
- Return-to-drawdown ratio, Calmar
- Updated
The Calmar ratio in plain words
The Calmar ratio divides a strategy's compound annual return by its maximum drawdown over the same stretch of time.1
A high value means the returns came without deep drawdowns; a low value means investors had to sit through bigger falls.2
So a hypothetical strategy returning 15% a year with a worst drawdown of 30% has a Calmar ratio of 0.5.
How to calculate the Calmar ratio
Choose the period
Corporate Finance Institute notes the usual input is the annual return over a three-year term.2
Compute annual return
Turn the period's growth into a compounded annual rate.
Find the maximum drawdown
Measure the largest peak-to-trough fall in the same period.
Divide
Divide the compound annual return by the size of the maximum drawdown, ignoring its minus sign.3
Compare like with like
Only compare ratios measured over identical time periods.1
Use it in tests
Corporate Finance Institute says the ratio is also useful for Backtesting trading strategies.2
Worked examples
Example 1 — Basic calculation
Calmar 0.5A hypothetical strategy returns 15% a year with a worst drawdown of 30%.
| Annual return | 15% |
| Max drawdown | 30% |
| Calmar ratio | 0.5 |
Annual growth divided by the maximum drawdown over the same period gives 0.5.1
Example 2 — Same return, smaller drawdown
Calmar 1.5Hypothetical strategy B also returns 15% a year but its worst drawdown is 10%.
| Annual return | 15% |
| Max drawdown | 10% |
| Calmar ratio | 1.5 |
A higher ratio suggests the return was not at risk of significant drawdowns, so B looks stronger.2
Example 3 — Unfair comparison
Not comparableHypothetical fund C shows a Calmar of 2.0 over one calm year; fund D shows 0.8 over three years including a crash.
| Fund C (1 year) | 2.0 |
| Fund D (3 years) | 0.8 |
These numbers cover different periods, so they can't be compared — the ratio only works over identical windows.1
Calmar vs Sharpe ratio
| Aspect | Calmar ratio | Sharpe ratio |
|---|---|---|
| Risk measure | Maximum drawdown | Volatility |
| Focus | Worst fall | Average variability |
| Time scaling | Cannot be scaled | Can be annualised |
| Typical window | Often three years | Any period |
Where the Calmar ratio is used
Comparing funds
Ranking managers on return per unit of drawdown.
Strategy tests
Judging Backtesting results alongside Profit Factor.
Risk budgets
Checking whether a Drawdown is acceptable for the return.
Portfolio choice
Mixing strategies in Portfolio Allocation.
Advantages and disadvantages
Advantages
- Focuses on the fall traders actually feel.
- Simple to calculate.
- Useful next to Sharpe and Sortino.
- Good for comparing systems over equal periods.
Disadvantages
- One worst drawdown drives the result.
- Cannot be scaled across time periods.
- Short windows can flatter it.
- Ignores how often drawdowns occur.
Going deeper
Read as far as you need. Each level builds on the one before it.
Definition
Beginner
In short: annualised compound growth over the worst peak-to-trough fall in the same period.1
Time windows
Intermediate
Unlike the Sharpe ratio, Calmar can't be converted from one period length to another, which is why a three-year window is the norm.2
Reading the number
Advanced
A high ratio suggests returns were not at risk of significant drawdowns, but because one event sets the denominator, pair it with Sharpe Ratio, Sortino Ratio and Risk of Ruin checks.2
Common mistakes
Mixing periods
Comparing one year with three years.
Ignoring sample size
A short test may miss the worst drawdown.
Using it alone
One number cannot describe all risk.
Forgetting costs
Fees change both return and drawdown.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- Calmar = annual return ÷ max drawdown.
- Higher means less drawdown per unit of return.
- Often measured over three years.
- Compare only equal periods.
- Use it with other ratios.
Frequently asked questions
What is a good Calmar ratio?
Is Calmar better than Sharpe?
Why three years?
Further learning
- Drawdown
The denominator.
- Sharpe Ratio
Volatility-based ratio.
- Sortino Ratio
Downside-volatility ratio.
- Risk of Ruin
Chance of losing too much.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- CFA Institute. Sculpting Investment Portfolios: Maximum Drawdown and Optimal Portfolio Strategy (opens in a new tab) Checked .
- Corporate Finance Institute. Calmar Ratio (opens in a new tab) Checked .
- IASG. Definitions and Formulas (opens in a new tab) Checked .
Read more elsewhere
- Trading Metrics (our sister site): Efficiency Metrics (opens in a new tab)
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. Trading Metrics is our sister site, under the same ownership; we are not affiliated with any other publisher linked above. Last reviewed . Report an error or request a source credit.