The Calmar Ratio is a performance metric that measures a fund's or strategy's annualised return relative to its maximum drawdown — the largest peak-to-trough decline over the measurement period. It is calculated as: Calmar Ratio = Annualised Return ÷ Maximum Drawdown (expressed as a positive number). A higher Calmar Ratio indicates that the strategy generates strong returns without exposing investors to severe losses. A Calmar Ratio above 1 is generally considered good. The Calmar Ratio is particularly useful for evaluating trading strategies and hedge funds where the pain of drawdowns is a primary investor concern — a strategy generating 20% annual returns with a 40% max drawdown is far less attractive than one generating 15% with a 10% drawdown, and the Calmar Ratio captures this distinction clearly.
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