Calmar ratio: what it is and how to calculate it

Written by the Tactfolio research teamPublished Data as of 7 min read

The Calmar ratio compares how fast an investment grew with how far it fell at its worst. You divide the yearly growth rate by the biggest drop from a high point, usually over the last 36 months. A higher number means more growth for each point of pain along the way.

Key points#

  • Calmar ratio = yearly growth rate divided by the worst drop.
  • The classic version looks at the last 36 months, or three years.
  • Terry W. Young created it in 1991 to rate managers who trade futures.
  • A higher Calmar is better. A negative Calmar means the investment lost money.
  • It only sees the single worst drop, so it works best next to other measures.

What is the Calmar ratio?#

The Calmar ratio is a score for return per unit of drawdown. It is one of several ratios that people use in algorithmic trading and fund research to compare strategies.

The top of the ratio is the CAGR, or compound annual growth rate. That is the steady yearly rate that would turn your starting money into your ending money. You can work it out with a CAGR calculator.

The bottom is the maximum drawdown. A drawdown is how far a portfolio falls from its last high point. The maximum drawdown is the deepest of those falls. Our guide to max drawdown explains it in more detail.

Here is the formula:

Calmar ratio = CAGR ÷ maximum drawdown

Both parts are written as positive percentages. So a fund that grew 10% a year and fell 20% at its worst has a Calmar of 10 ÷ 20 = 0.5.

Where does the name Calmar come from?#

Terry W. Young made the Calmar ratio. He ran a firm called California Managed Accounts, which put out a newsletter called CMA Reports. “Calmar” comes from the first letters of those words: CALifornia Managed Accounts Reports.

Young first wrote about it in an article called “Calmar Ratio: A Smoother Tool”. It ran in Futures magazine in October 1991. The article does not appear to be online, so we rely on the summary in the Wikipedia entry on the Calmar ratio, which quotes it.

Young built his ratio from an older one, the Sterling ratio. He used the last 36 months and updated the number every month. He wrote that this made it change slowly and smooth out a manager’s lucky and unlucky stretches.

How to calculate the Calmar ratio: an example#

Say you are looking at two strategies over the same three years.

Strategy AStrategy B
Growth per year (CAGR)12%8%
Worst drop (max drawdown)30%10%
Calmar ratio12 ÷ 30 = 0.48 ÷ 10 = 0.8

Strategy A grew faster. But to get that growth, you had to sit through a 30% fall. On $10,000, that means watching your account sink to $7,000.

Strategy B grew more slowly. Its worst fall took $10,000 down to $9,000. Its Calmar is twice as high, so it earned more growth for each point of drop.

The Calmar ratio does not tell you which one to pick. It tells you what each one asked of you. A strategy you quit in its worst year earns you nothing, so a high Calmar can mean a plan that is easier to stick with.

What is a good Calmar ratio?#

There is no official cutoff. A Calmar above 1 means the yearly growth was larger than the worst drop. Over long periods that include a crash, stock-heavy portfolios often land well below 1.

Here is a real case. Tactfolio tracks the Faber sector rotation, which holds the three strongest US stock sectors. Its page gives rounded figures for a hypothetical backtest from mid-2007 to September 25, 2026. A backtest replays rules on past prices. It is not a record of real trades.

Portfolio (mid-2007 to Sept. 25, 2026)Growth per yearWorst dropRough Calmar
Faber sector rotationa bit under 8%about 22%about 0.35
S&P 500about 11%more than 50%about 0.2 or less
60/40 stocks and bondsabout 8%about 33%about 0.24

We worked out the last column from the rounded numbers on the page, so treat it as rough. The rotation grew more slowly than the S&P 500. But its Calmar was higher, because its worst fall was far smaller. Note that this covers about 19 years, not 36 months. Over a longer window, the worst drop tends to be deeper, so the Calmar tends to be lower.

Calmar vs Sharpe, Sortino and MAR ratio#

All four ratios divide some kind of return by some kind of risk. The difference is how they define risk and how much history they use.

RatioTop of the ratioBottom of the ratioPeriodWhat it catchesWhat it misses
CalmarYearly growth (CAGR)Worst dropUsually last 36 monthsThe one deepest lossHow often smaller drops happen
MARYearly growth (CAGR)Worst dropFrom the very startDeepest loss over the full recordRecent changes, since old data counts the same
SharpeReturn minus the cash rateVolatility (all swings)AnyHow bumpy the ride wasRare deep crashes, and it counts gains as risk too
SortinoReturn minus a targetDownside swings onlyAnyBumpiness on the way downThe single worst loss

Volatility means how much returns swing up and down around their average. The Sharpe ratio uses all of those swings. The Sortino ratio counts only the swings below a target, so big jumps up do not count against you. Morningstar’s list of fund measures defines Sharpe, Sortino and Calmar side by side.

The MAR ratio is the one most often mixed up with Calmar. It came from a rival newsletter, Managed Account Reports. It uses the same math but over the whole history, from the day the fund began. So a Calmar figure computed over 15 years is really closer to a MAR ratio.

Common mistakes with the Calmar ratio#

  • Comparing different periods. A three-year Calmar and a ten-year Calmar are not the same thing. Compare strategies only over the same start and end dates.
  • Trusting a short window. Three calm years can show a huge Calmar because no crash happened. Check whether the period holds a bad market, such as 2008, 2020 or 2022.
  • Forgetting it sees one drop. Two strategies can share the same worst drop. One may have fallen that far once, and the other five times.
  • Mixing daily and monthly data. Young used monthly figures. Daily prices catch lows inside a month, so the worst drop looks deeper and the Calmar looks lower.
  • Reading it as a forecast. A past Calmar says what happened. It does not say what the next drop will be.

Try it on Tactfolio#

Every Tactfolio backtest shows a Calmar figure, worked out as CAGR divided by the size of the max drawdown. It sits next to CAGR, Sharpe and max drawdown, over whatever window you pick. Choose the 3Y window to get close to Young’s 36-month version, or Max to see the full history. Open a classic strategy in the strategy builder, change one rule, and watch how the Calmar moves. Our guide to reading a backtest explains which number to read first.

Common questions#

How do you calculate the Calmar ratio?#

Divide the compound annual growth rate by the maximum drawdown, both as positive numbers. A fund that grew 9% a year and fell 18% at its worst has a Calmar of 0.5. The classic version uses the last 36 months of monthly data.

Is a higher Calmar ratio better?#

Yes. A higher Calmar means more yearly growth for each point of the worst drop. It does not mean the strategy will do well from here, and it only compares fairly over the same dates.

What is the difference between the Calmar ratio and the Sharpe ratio?#

The Sharpe ratio divides return by volatility, which counts every swing up or down. The Calmar ratio divides growth by the single deepest drop. Sharpe tells you how bumpy the ride was. Calmar tells you how bad the worst stretch got.

Is the Calmar ratio the same as the MAR ratio?#

No, though people often treat them as the same. Both divide yearly growth by the worst drop. Calmar uses the last 36 months, while MAR uses the whole history from the start.

Can the Calmar ratio be negative?#

Yes. If the investment lost money over the period, its growth rate is below zero, so the Calmar is negative. A negative Calmar tells you the strategy did not earn back its worst drop.

The details#

Young’s 1991 version uses the average annual return over the last 36 months, divided by the maximum drawdown over the same 36 months, recalculated each month. Later writers have subtracted a cash rate, such as the Treasury bill yield, from the top, which turns it into a Sharpe-style ratio.

Tactfolio’s figure uses the backtest’s CAGR divided by the absolute value of its max drawdown, measured on daily closing prices with dividends reinvested and a 0.05% cost per trade. The window is whatever you choose, so it equals the classic Calmar only on a 3-year window and is a MAR-style ratio on longer ones. Discover lists Calmar over up to ten years. The Tactfolio Score uses an expected Calmar ratio as one of its three parts, after discounting what a backtest may owe to hindsight.

Sources

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