Calmar ratio

The Calmar ratio divides your annualised return by your worst fall. Where Sharpe and Sortino measure return against the average spread of daily moves, Calmar measures it against the single worst episode.

It is the closest of the ratios to how people actually judge an investment after the fact: was the return worth the drop I had to sit through?

How it is calculated

Calmar ratio = annualised return / |maximum drawdown|

Annualised return is the compound growth rate implied by the first and last values in your window, scaled to a year.

Maximum drawdown is the largest peak-to-trough fall in that window, taken as a positive number for the division. See maximum drawdown for how it is found.

A portfolio that returned 12% a year and fell 24% at its worst has a Calmar ratio of 0.5.

How to read it

Higher means more annual return for each unit of worst-case pain.

Two properties are worth holding in mind, because they make Calmar behave differently from the other ratios.

It is driven by a single event. The denominator is one episode, not a distribution. One unusually bad month can halve the ratio for years afterwards, even if nothing else about the portfolio changed.

It is unstable when the drawdown is small. A portfolio that has barely fallen produces a tiny denominator and therefore a very large ratio. A figure that looks spectacular usually means the window contained no real stress, rather than that the portfolio handles stress well.

A portfolio that never fell at all has no drawdown to divide by, and Gylder shows zero rather than an infinity.

As with the other ratios, Gylder does not set a threshold for what counts as good.

Window sensitivity

Calmar is more window sensitive than any other measure in the grid, because both halves of it change with the date range and they change for different reasons. Extending the window gives the drawdown more chances to deepen while smoothing the annualised return. Comparing a one year Calmar against a five year one tells you very little.