Calmar Ratio

The Calmar ratio measures risk-adjusted performance by dividing a strategy's annualised return by its maximum drawdown over the same period, conventionally the past three years. A Calmar of 2 means the strategy earned twice its worst peak-to-trough loss each year on average. The name abbreviates California Managed Accounts Reports, the newsletter of Terry Young, who introduced the measure for comparing commodity trading advisors. Because the denominator is the single deepest loss rather than average volatility, the ratio speaks directly to the question of whether returns justified the worst experience an investor had to sit through. That focus makes it popular for evaluating leveraged strategies and prop-trading track records, where drawdown limits are binding. Its weakness is symmetrical: one extreme drawdown dominates the figure long after conditions change, and short records make it unstable.