Calmar Ratio
Definition
The Calmar ratio is the annualised return divided by the maximum drawdown over the same period. It directly answers the trader's most practical question: how much return per unit of worst-case loss. Calmar above 1 is acceptable for retail EAs, above 3 is strong, above 5 is excellent but uncommon.
Formula
\text{Calmar} = \frac{\text{Annualised Return}}{|\text{Max Drawdown}|}Calmar = annualised return / |maximum drawdown|
In-depth: Calmar Ratio
The Calmar ratio (Terry W. Young, 1991) — also called the Drawdown ratio — is computed as annualised compound return ÷ maximum drawdown over the period. The metric is named after Young's 'CALifornia Managed Account Reports' newsletter.
Formal definition: Calmar = annualised compound return ÷ |max drawdown|, both expressed as percentages.
The Calmar ratio's appeal is its direct interpretation. Sharpe ratios are abstract (return per unit of standard deviation); Calmar is concrete (annual return per unit of worst-case loss). A trader can read a Calmar of 2.0 as: 'this strategy delivered twice its worst-ever drawdown in annual returns'.
Practical bands for forex EAs on multi-year live tracks: - Calmar < 1: strategy returns less per year than its worst drawdown — typically poor risk-adjusted performance - 1.0-2.0: acceptable for conservative strategies - 2.0-3.0: good for retail EAs - 3.0-5.0: excellent - Above 5.0: uncommon over multi-year live operation; either short-track regime favourability or hidden risk
Limitations: Calmar is highly sensitive to the measurement period because max drawdown is path-dependent. A strategy measured over a year that happened to include its worst drawdown shows lower Calmar than the same strategy measured over a period that missed the drawdown. The standard convention is 36-month rolling Calmar to normalise this.
For EAs, Calmar pairs naturally with Sortino: Sortino captures distributional risk, Calmar captures path-dependent worst-case risk. Together they characterise both volatility-based and tail-based risk.