What is the Calmar ratio?
In one line: The Calmar ratio is a strategy's average yearly return divided by its max drawdown, often measured over the last 3 years. Higher means less drop for each unit of return.
The formula
Calmar ratio = average yearly return ÷ max drawdown
Both are in percent. Funds often use the last 36 months of data.
A simple example
Two made-up strategies over the same 3 years:
| Strategy | Average yearly return | Max drawdown | Calmar ratio |
|---|---|---|---|
| A | 12% | 24% | 12 ÷ 24 = 0.5 |
| B | 8% | 8% | 8 ÷ 8 = 1.0 |
A gained more per year. But to get there, it dropped 24% from a high at one point. B gained less with a much smaller worst dip. Per unit of drop, B did twice as well in this example. A math example, not a promise.
Why it matters
Return on its own hides the pain. The Calmar ratio puts the worst stretch right next to it.
That matters because deep drops are hard to recover from. A 24% drop needs about a 32% gain just to get back. See compounding losses and max drawdown.
It's also simple. Two numbers, one division.
A common mistake
Trusting a Calmar ratio from a short or calm period. Max drawdown is a single worst moment. In a quiet year it may be small, which makes the ratio look great. One rough month later, it can change a lot.
Also, check what period it uses. A 1-year Calmar and a 3-year Calmar aren't the same number. Compare only like with like.
For your own practice trades, the same idea works in units of risk: total R ÷ max drawdown in R. That's the recovery factor.
For ratios that use swings instead of the single worst drop, see the Sortino ratio and the Sharpe ratio.
Questions
What is a good Calmar ratio?
Higher is better. Values above 1 mean yearly return was larger than the worst drop over the period. It depends on the period used, and past results don't guarantee future ones.
What is the difference between the Calmar ratio and the Sharpe ratio?
Calmar divides return by the single worst drop. Sharpe divides return by how much results swing overall.
Why does the Calmar ratio use 36 months?
It's a common convention that covers more than one market mood. Some tools use other periods, so always check.
Want the next step? We'll walk you through it.
Four free lessons by email, one every few days — each with a 10-minute exercise on a real chart.
Send Me the Free Lessons 4 short emails · No spam · Unsubscribe anytimeOr see the whole method, step by step:
See What’s Inside the Course Try everything free first. Decide when you're ready. · Open the free chart tool (works in the TradingView phone app)One chart idea a day, in plain English. Follow along: