Calmar

Calmar Ratio Explained

Annual return relative to the worst drawdown you've experienced

Formula

CAGR / |Maximum Drawdown|

compound annual growth rate divided by the absolute value of maximum drawdown over the same period.

What is the Calmar Ratio?

The Calmar Ratio (named after California Managed Accounts Reports) measures how much annualised return you earn per unit of maximum drawdown risk. It answers: is the return worth the worst loss you've had to endure? Unlike the Sharpe Ratio, which uses standard deviation, the Calmar uses maximum drawdown — making it particularly relevant for investors who are sensitive to large, sustained losses rather than day-to-day volatility.

How to interpret it

A higher Calmar is better. A ratio above 0.5 is considered reasonable; above 1.0 is strong. The Calmar is especially popular for evaluating hedge funds, managed futures, and trend-following strategies where drawdown control is a core objective. For buy-and-hold equity investors, the Calmar will naturally be lower — equity indices typically show a Calmar of 0.2–0.5 over a full market cycle.

What counts as a good Calmar?

< 0.2Weak — returns poorly compensate for historical drawdown severity

0.2 – 0.5Moderate — typical of long-only equity strategies

0.5 – 1.0Good — strong return relative to worst observed drawdown

> 1.0Excellent — exceptional drawdown-adjusted performance

What affects your Calmar?

Maximum drawdown depth — a single severe drawdown event permanently lowers the Calmar
Return consistency — steady compounding improves CAGR without increasing MDD
Time horizon — longer histories tend to capture worse drawdowns, suppressing the ratio
Stop-loss discipline — cutting losses early preserves the denominator

How Portivex uses Calmar

Portivex shows the Calmar Ratio in the advanced metrics section. Because it depends on Maximum Drawdown, which requires a meaningful return history to be reliable, Portivex flags Calmar readings based on fewer than 90 days as low-confidence. The metric is most useful when comparing two portfolio configurations with similar return targets.

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Frequently asked questions

How is the Calmar Ratio different from the Sharpe Ratio?

The key difference is the risk denominator. Sharpe uses standard deviation — a measure of typical daily volatility. Calmar uses maximum drawdown — the worst sustained loss you've actually experienced. Calmar is better for investors who can tolerate volatility but not large sustained losses, while Sharpe is more appropriate for those who dislike day-to-day fluctuations.

Does a higher Calmar mean I should be taking more risk?

Not necessarily. A high Calmar Ratio means your returns have been well-compensated relative to your worst historical drawdown. It doesn't imply you should increase leverage or concentration. It's a quality signal for the risk you've already taken, not a directive to take more.

Why is the Calmar Ratio lower for longer holding periods?

Because longer holding periods tend to capture larger market cycles and therefore larger maximum drawdowns. A portfolio held through 2020's COVID crash or the 2022 rate shock will show a much larger MDD than one held only through 2023–2024. The CAGR may also be lower, compounding the effect.

Related metrics

See your Calmar Ratio in real time.

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