Calmar Ratio
Annualised return divided by maximum drawdown, favouring strategies with shallow losses.
Definition
The Calmar Ratio (Compounded Annual Return / Maximum Drawdown) measures return per unit of worst-case loss. It is popular among CTAs and trend-followers because drawdown is what actually causes investors to redeem. While Sharpe penalises all volatility, Calmar only cares about the deepest peak-to-trough fall. A Calmar above 1.0 means the strategy makes more per year than its worst loss; above 3.0 is considered exceptional.
Formula
Calmar = CAGR / |Max Drawdown|
where CAGR is computed over the same window as the drawdown (usually 3 years).Worked example
A strategy compounds at 18% per year with a worst drawdown of 12% during the test window. Calmar = 18% / 12% = 1.5. Compare with a 25% CAGR strategy that suffered a 40% drawdown: Calmar = 0.63. The first strategy is more capital-efficient for an investor who cannot tolerate large losses.
How ARIA Analyst uses it
ARIA uses Calmar in the Walk-Forward Analysis dashboard and as a tie-breaker in the Strategy Lab when ranking comparable backtests.
Related terms
Sharpe Ratio
Risk-adjusted return measured as excess return per unit of total volatility.
Sortino Ratio
A refinement of the Sharpe Ratio that penalises only downside volatility.
Maximum Drawdown
The largest peak-to-trough decline of equity over a given window.
Walk-Forward Analysis
A backtesting procedure that retrains the model on a rolling window and tests on the next out-of-sample period.
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