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.
Formula
Copy the exact expression or work through it step by step below.
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
3
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
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Sources & References
- Calmar Ratio: A Smoother Tool — Terry W. Young, Futures Magazine (1991)
- Practical Portfolio Performance Measurement and Attribution — Carl R. Bacon, Wiley (2008)
Related Content
Keep the topic connected
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.
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.
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.
Drawdown
Drawdown explained: peak-to-trough decline, why max drawdown alone is misleading, and the recovery math that actually matters.