# 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. Source: https://learn.tradelabsai.com/portfolio/calmar-and-mar-ratio/ Track: Portfolio and Performance · Level: Intermediate · Updated: 2026-10-03 Publisher: TradeLabs AI (https://tradelabsai.com). Education, not financial advice. Cite as: TradeLabs Learn, "Calmar and MAR Ratio", https://learn.tradelabsai.com/portfolio/calmar-and-mar-ratio/ 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. **Example: Comparing two funds** Fund A has a CAGR of 15% and a maximum drawdown of 25%, giving a ratio of 15 divided by 25, or 0.6. Fund B has a CAGR of 10% and a maximum drawdown of 10%, giving 1.0. B earned less but its worst loss was far smaller relative to its returns. An investor who can tolerate a 25% drop might still prefer B with modest leverage: at 1.5 times exposure, B would roughly offer 15% return with a 15% drawdown, if costs and correlations stay similar. See [Maximum Drawdown](https://learn.tradelabsai.com/portfolio/maximum-drawdown/). ## 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](https://learn.tradelabsai.com/psychology/emotional-control/). - **Recovery is asymmetric:** a 50% loss needs a 100% gain to recover. See the [Drawdown Recovery Calculator](https://learn.tradelabsai.com/tools/drawdown-recovery-calculator/). - **Leverage decisions:** maximum drawdown helps decide how much leverage a strategy can bear. See [Risk of Ruin](https://learn.tradelabsai.com/risk/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](https://learn.tradelabsai.com/portfolio/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](https://learn.tradelabsai.com/research/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](https://learn.tradelabsai.com/portfolio/risk-limits/) and [Position Sizing](https://learn.tradelabsai.com/risk/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](https://learn.tradelabsai.com/portfolio/omega-ratio/). ## Continue learning - Next lesson: [Omega Ratio](https://learn.tradelabsai.com/portfolio/omega-ratio/) - Previous lesson: [Sortino Ratio](https://learn.tradelabsai.com/portfolio/sortino-ratio/) - Related: [Sortino Ratio](https://learn.tradelabsai.com/portfolio/sortino-ratio/): The Sortino ratio divides excess return by downside deviation, penalising only harmful volatility. Learn the formula, a worked example and when to prefer it. - Related: [Maximum Drawdown](https://learn.tradelabsai.com/portfolio/maximum-drawdown/): Maximum drawdown measures the largest fall from a peak to a trough in an account or strategy. Learn how to calculate it, recovery maths, duration and how to use it. - Related: [Sharpe Ratio](https://learn.tradelabsai.com/portfolio/sharpe-ratio/): The Sharpe ratio measures return per unit of risk. Learn the formula, how to annualise it, what counts as a good Sharpe ratio, its limitations and common mistakes. - Related: [Ulcer Index](https://learn.tradelabsai.com/portfolio/ulcer-index/): The Ulcer Index measures downside risk by combining how deep and how long drawdowns last. Learn the formula, a worked example, the Martin ratio and how to use it. - Related: [Drawdown Recovery Calculator](https://learn.tradelabsai.com/tools/drawdown-recovery-calculator/): Free drawdown recovery calculator. Enter a drawdown percentage to see the gain needed to get back to break even and how long recovery may take. - Related: [Risk of Ruin](https://learn.tradelabsai.com/risk/risk-of-ruin/): Risk of ruin is the chance that losses drain your account beyond recovery. Learn what drives it, see simulated numbers and how to keep it low.