Definition
The Calmar Ratio measures risk-adjusted returns using maximum drawdown as the risk measure. It divides the average annual compound return by the maximum drawdown over a period (typically 3 years). Higher ratios indicate better return relative to the worst loss experienced.
Formula
Calmar Ratio = Average Annual Return / Maximum Drawdown
Example
A fund with 15% annual return and 20% max drawdown has a Calmar Ratio of 0.75. Higher is better.
FAQ
What is Calmar Ratio?
A ratio comparing average annual return to maximum drawdown.
How do you calculate Calmar Ratio?
A common formula for Calmar Ratio is: Calmar Ratio = Average Annual Return / Maximum Drawdown
Why is Calmar Ratio important?
Calmar Ratio helps investors evaluate portfolio management and make more informed decisions.