What is the Calmar Ratio?
The Calmar ratio, also known as the Drawdown Ratio, is a performance assessment used to gauge the merits and downsides of hedge funds and commodity trading advisors. It was devised by Terry W Young.
Where have you heard about the Calmar Ratio?
Since its first publication in 1991, many investors and financial advisors have found the Calmar Ratio extremely useful. Every investment comes with a certain amount of risk attached and a way to quantify risk is important to making good investment decisions.
What you need to know about the Calmar Ratio.
This ratio assesses funds on a risk adjusted basis. A higher Calmer Ratio implies that a funds return isn’t at risk of more-than-average drawdowns and a lower Calmar Ratio implies that the risk of drawdown is higher. Young described the ratio as using a slightly modified Sterling Ratio – average annual rate of return for the last 36 months divided by the maximum drawdown for the last 36 months, calculated on a monthly basis instead of the Sterling Ratio's yearly basis.