Calmar Ratio

Definition

The Calmar Ratio is a risk-adjusted metric that measures an investment’s annualized return (CAGR) relative to its maximum drawdown. It evaluates performance in the context of the worst-case scenario and is useful for assessing strategies with significant drawdowns.

Formula

$\text{Calmar Ratio} = \frac{\text{CAGR}}{\text{Max Drawdown}}$

Where:

• CAGR = Compound Annual Growth Rate
• Max Drawdown = largest percentage decline from peak to trough