Formula, in Risk & Portfolio Construction

Calmar Ratio Formula

The Calmar ratio is the annualized (compound) return of a strategy divided by its maximum drawdown over the same period, taken as a positive number. It answers a single blunt question: how much return did the strategy earn per unit of its worst peak-to-trough loss.

4 variables. Published May 26, 2026. By AI Fin Hub Research.

Formula

Calmar = CAGR / |MaxDrawdown|

CAGR = (Ending / Beginning)^(1 / years) - 1

MaxDrawdown = min over t of ( Equity_t / Peak_t - 1 )

Variables

CAGR

Compound annual growth rate

The annualized geometric return over the measurement window. Calmar uses compound return rather than arithmetic mean so it reflects the actual path-dependent growth of capital.

MaxDrawdown

Maximum drawdown

The largest peak-to-trough decline in the equity curve over the window, expressed as a negative fraction. The Calmar ratio uses its absolute value. By the original Young definition the window is 36 months.

Equity_t

Equity at time t

Cumulative account or NAV value at each point in the series.

Peak_t

Running peak

The highest equity value observed at or before time t. The drawdown at each point is the current equity relative to this running maximum.

Step by step

1

Compute the compound annual growth rate over the window from beginning and ending equity.

Equity grows from 100 to 144 over 2 years: CAGR = (144/100)^(1/2) - 1 = 1.2 - 1 = 0.20 = 20%.
2

Track the running peak of the equity curve and the drawdown at every point as current equity over running peak minus one.

Equity hits a peak of 130, then falls to 104: drawdown = 104/130 - 1 = -0.20.
3

Take the most negative drawdown across the entire series as the maximum drawdown.

If the deepest trough is -25%, the maximum drawdown is -0.25.
4

Divide the CAGR by the absolute value of the maximum drawdown.

20% / 25% = 0.80.

Worked example

Managed futures program over 3 years

Beginning equity

100

Ending equity

166.4

Years

Maximum drawdown

-22%

CAGR = (166.4 / 100)^(1/3) - 1 = 1.664^0.3333 - 1. The cube root of 1.664 is 1.1849, so CAGR = 0.1849 = 18.49%. Calmar = 0.1849 / 0.22 = 0.840.

Calmar ratio of about 0.84. The program earned roughly 0.84 units of annualized compound return for every unit of its deepest drawdown. Calmar values above 1.0 are generally considered strong for trend-following programs over a multi-year window.

Common variations

Sterling ratio: subtracts an arbitrary 10% from the average annual drawdown in the denominator, making it stricter than Calmar.

MAR ratio: identical in spirit but computed over the full track record rather than a rolling 36-month window.

Sharpe ratio: replaces drawdown with return standard deviation, measuring dispersion risk rather than worst-case path risk.

Run the numbers next

Calculators Drawdown-Recovery Markov Simulator
Time to recover from an N% drawdown given monthly Sharpe + skew + kurtosis. Cornish-Fisher Monte Carlo, percentile distribution of recovery months.
Calculators Returns Distribution Analyzer
Paste a returns CSV. Histogram, normal QQ plot, skewness, excess kurtosis, Jarque-Bera test, tail-weight index. See why Sharpe alone misleads.

Sources

Calmar Ratio: A Smoother Tool , Terry W. Young, Futures Magazine (1991)
Practical Portfolio Performance Measurement and Attribution , Carl R. Bacon, Wiley (2008)

Keep the topic connected

Formula Maximum Drawdown Formula
The maximum drawdown formula: the largest peak-to-trough decline in an equity curve. The worst loss from a prior high, with a worked example.
Formula Sterling Ratio Formula
The Sterling ratio formula: annualized return over average annual drawdown plus a 10% penalty. A stricter drawdown-adjusted return, with an example.
Formula CAGR Formula
The CAGR formula: the constant annual rate growing a beginning value to an ending value over n years. The true geometric return, with a worked example.
Learn Drawdown
Drawdown explained: peak-to-trough decline, why max drawdown alone is misleading, and the recovery math that actually matters.