Calmar Ratio

The Calmar Ratio, introduced by Terry Young in 1991 (the name is a contraction of California Managed Accounts Reports, his newsletter), is the simplest "return per unit of pain" metric in trading: how much annualised return do I get for each percentage point of maximum drawdown I had to endure?

Formula

Calmar = CAGR / |Maximum Drawdown|

Both numerator and denominator are typically measured over a 36-month rolling window in the original definition, though many software packages — MEDGE included — report Calmar over the full backtest window for consistency with the other metrics.

How to read the number

• ·Calmar < 0.5 — the strategy is paying you less than half its drawdown per year. Hard to hold through.
• ·Calmar 0.5-1.0 — typical for a long-only equity benchmark over a full cycle.
• ·Calmar 1.0-2.0 — well-diversified multi-asset with active drawdown control.
• ·Calmar > 3.0 — almost always a sign of survivorship bias, lookback window, or in-sample fitting.

Calmar vs Sharpe

Sharpe penalises volatility — the noisy week-to-week shake. Calmar penalises the worst experience of the period. A strategy can have an excellent Sharpe and a terrible Calmar if it makes money slowly and then loses a lot once; the reverse is rare. For systems that produce step-jump returns (trend-following, momentum), Calmar tells more of the story than Sharpe.

How MEDGE Capital uses Calmar

Calmar is reported in every backtest and Max Calmar is one of the 12 optimization objectives. The Crisis Library presets (2008, 2020, 2022, 2018 Q4) calculate Calmar over each crisis window separately so you can see how the strategy compounds return per unit of crisis-window drawdown — the single most actionable robustness number for an investor.