Calmar and MAR Ratio
The Calmar and MAR ratios compare annual return with maximum drawdown. Learn the formulas, how they differ, a worked example and their strengths and weaknesses.
Volatility measures how much returns bounce around, but what really tests a trader or investor is the drawdown: how much the account falls from its peak before recovering. The Calmar ratio and the closely related MAR ratio measure return relative to the worst drawdown. They are especially popular for evaluating commodity trading advisors, managed futures funds and other strategies where large losses determine whether investors stay or leave.
The formulas#
Calmar ratio = Annualised return (usually last 36 months) / Maximum drawdown (same period)
MAR ratio = CAGR since inception / Maximum drawdown since inception| Ratio | Created by | Period |
|---|---|---|
| Calmar | Terry Young, 1991, named after his California Managed Accounts Reports newsletter | Usually the last 3 years |
| MAR | Managed Account Reports | Full history since inception |
In practice many people use "Calmar ratio" loosely for any return divided by maximum drawdown. Always state the period.
Interpreting values#
| Ratio | Rough interpretation |
|---|---|
| Below 0.5 | Returns are small relative to the pain of drawdowns |
| 0.5 to 1.0 | Acceptable for many strategies |
| 1.0 to 3.0 | Strong |
| Above 3.0 | Excellent, or a short record without a real test |
Values from short periods can be misleading, because the worst drawdown may simply not have happened yet.
Why drawdown based ratios matter#
- Drawdowns drive behaviour: investors redeem and traders abandon systems after deep losses. See Emotional Control.
- Recovery is asymmetric: a 50% loss needs a 100% gain to recover. See the Drawdown Recovery Calculator.
- Leverage decisions: maximum drawdown helps decide how much leverage a strategy can bear. See Risk of Ruin.
Weaknesses#
| Weakness | Explanation |
|---|---|
| Single worst event | One episode dominates; the ratio ignores how often drawdowns happen |
| Path dependence | Drawdown depends on the order of returns |
| Grows worse with time | Longer records tend to contain deeper drawdowns |
| Short records flatter | A young strategy may not have met its worst market yet |
| No duration information | A deep fast drop and a long slow grind can score the same. See Ulcer Index |
Expected maximum drawdown#
For a given volatility and return, the expected maximum drawdown grows with time. Monte Carlo simulation of a strategy's returns, reshuffled many times, gives a distribution of possible drawdowns that is more informative than the single historical figure. See Monte Carlo Simulation.
Using drawdown ratios in practice#
When comparing managers or strategies, line up their Calmar or MAR ratios over the same dates, since a fund that started after a crash will look better than one that lived through it. Ask for the date and length of the maximum drawdown, how long recovery took and whether the drawdown came from one event or a slow decline. For your own trading, set a maximum drawdown you are willing to accept before you start, size positions so a drawdown twice as deep as the backtest's worst would still be survivable, and write down what you will do if that level is reached. Drawdown ratios are most useful as a planning tool for these decisions, not only as a score. See Risk, Position, Loss and Drawdown Limits and Position Sizing.
Frequently asked questions#
What is the Calmar ratio?#
The annualised return, usually over the last three years, divided by the maximum drawdown over the same period.
What is the difference between the Calmar and MAR ratios?#
The Calmar ratio traditionally uses the last 36 months; the MAR ratio uses the full history since inception.
What is a good Calmar ratio?#
Above 1.0 is generally considered strong, but values from short periods should be treated with caution.
Next, learn a measure that uses the whole return distribution in Omega Ratio.
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