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Calmar ratio

Annualised return divided by maximum drawdown, usually over three years. A crude measure that corresponds closely to what actually makes people quit.

A strategy returning 15% a year with a 30% worst drawdown has a Calmar of 0.5. One returning 8% with a 10% drawdown has 0.8 and is the easier thing to keep trading through, which is a real advantage rather than a statistical one.

Its weakness is that max-drawdown is a single observation, the worst thing that happened once. It has enormous sampling error, it grows mechanically with the length of the track record, and it says nothing about the rest of the distribution.

Use it alongside distribution-based measures, not instead of them. A better version of the same question is the median of the worst drawdowns across a block-bootstrap, which gives a range rather than one unrepeatable number.

Related: max-drawdown, sortino-ratio, sharpe-ratio, block-bootstrap

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

An equity curve and its drawdownAn account balance rising over a year, falling from a peak to a trough, then climbing back to the old peak.ACCOUNT EQUITY$20k$12k$8k024681012TIME (MONTHS)PEAK $16,000TROUGH $12,000DRAWDOWN−25%RECOVERY
Equity curve and drawdown. An account balance plotted month by month. The fall from the $16,000 peak to the $12,000 trough is a 25% drawdown, and the shaded area lasts until the balance climbs back to the old peak.

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