Calmar RatioDefined along with Formula & How to Calculate

Denise Elizabeth P
Senior Financial Editor & Contributor

Date Published: August 4, 2022

What is the Calmar Ratio?

The Calmar Ratio, the acronym for California Managed Account Reports, can be used as an indicator of the performance of a person’s investments.

Examples of investments are Hedge Funds and Commodity Trading Advisors (CTAs).

It is calculated based on the compounded annual rate of return and the maximum drawdown for the past 3 years. 

Essentially, the ratio is used to compare an investment’s risk and return.

When the Calmar Ratio is higher, it is expected that it can perform better on a risk-adjusted basis within a given time period, usually for 36 months. 

The formula to compute the Calmar Ratio is shown below:

calmar ratio


Rp = Portfolio return

Rf = Risk-free rate

Rp – Rf = Annual rate of return

Calmar Ratio History

Terry W. Young worked as a fund manager in California when he developed and introduced the Calmar Ratio in 1991.

He said that the Calmar Ratio, as opposed to the more common methods of gauging a fund’s performance which are the Sterling or Sharpe ratios, provided a more up-to-date picture of a fund’s performance because it was calculated monthly rather than annually.

The Calmar ratio is considered to be smoother than the Sterling ratio due to its monthly updates. 

Young also called this ratio the Drawdown Ratio – a  modified version of the Sterling ratio. 

The Calmar Ratio’s Strengths and Weaknesses

One of the advantages of using the Calmar ratio is that it gives the investor the knowledge of the possible maximum decline of the price in the market – the maximum drawdown.

Another advantage of using the Calmar Ratio is its simplicity, making it more understandable than other ratios used.

The time period used in the computation also makes it a more reliable basis of information because of the three-year timeframe. 

A single disadvantage of using this ratio is the focus it gives on drawdown which limits the overall view of risks and the market’s general volatility.

As a result, the Calmar Ratio statistically becomes less significant and useful.

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  1. Rensselaer "An Analysis of the Maximum Drawdown Risk Measure" White paper. August 4, 2022