The Calmar Ratio measures how much return was earned for each unit of downside risk, using the maximum drawdown as the risk metric. It is commonly applied to time series with drawdowns, such as hedge funds, managed futures, and other strategies where period-to-period declines matter. The ratio is calculated by taking the compound annual growth rate and dividing it by the maximum drawdown observed over the same time horizon.
Steps to compute: (1) select the evaluation period; (2) calculate CAGR; (3) identify the largest peak-to-trough decline in the value series (maximum drawdown); (4) divide CAGR by the maximum drawdown, treating drawdown as a positive number. If the period ends at a peak, the maximum drawdown is still measured across the full window. The result is a unitless figure.
Analysts compare strategies with different drawdown profiles by looking at the Calmar Ratio. A higher ratio indicates more return per unit of downside risk, within the chosen period, and it complements other risk-adjusted measures that rely on volatility alone.
The ratio is horizon-dependent and can change with the lookback period. It emphasizes drawdown magnitude but may understate risk when multiple drawdowns occur in a short span or when tail events are not well represented in the period.
An analyst compares two portfolios over five years. Portfolio A has a CAGR of 7% and a maximum drawdown of 14%, yielding a Calmar Ratio of 0.50; Portfolio B has a CAGR of 9% with a maximum drawdown of 25%, yielding 0.36. This helps assess risk-adjusted performance across the same horizon.
Sharpe Ratio · Sortino Ratio · Max Drawdown · Volatility · Treynor Ratio · Annualized Return