Calmar ratio (or Drawdown ratio) is a performance measurement used to evaluate
Commodity Trading Advisors
A commodity trading advisor (CTA) is US financial regulatory term for an individual or organization who is retained by a fund or individual client to provide advice and services related to trading in futures contracts, commodity options and/or ...
and
hedge fund
A hedge fund is a pooled investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio-construction, and risk management techniques in an attempt to improve performance, such as sho ...
s. It was created by Terry W. Young and first published in 1991 in the trade journal ''Futures''.
Young owned California Managed Accounts, a firm in Santa Ynez, California, which managed client funds and published the newsletter ''CMA Reports''. The name of his ratio "Calmar" is an acronym of his company's name and its newsletter: CALifornia Managed Accounts Reports. Young defined it thus:
Young believed the Calmar ratio was superior because
It should be mentioned that a competitor newsletter, ''Managed Account Reports'' (founded in 1979 by publisher Leon Rose), had previously defined and popularized another performance measurement, the MAR Ratio, equal to the compound annual return ''from inception'', divided by the maximum
drawdown ''from inception''.
Although the Calmar ratio and MAR ratio are sometimes assumed to be identical, they are in fact different: Calmar ratio uses 36 months of performance data, whereas MAR ratio uses all performance data from inception onwards. Later versions of the Calmar ratio introduce the
risk free rate
The risk-free rate of return, usually shortened to the risk-free rate, is the rate of return of a hypothetical investment with scheduled payments over a fixed period of time that is assumed to meet all payment obligations.
Since the risk-free ra ...
into the numerator to create a
Sharpe type ratio.
[Carl R Bacon, "Practical Risk-adjusted Performance Measurement", Page 100]
See also
*
Omega ratio The Omega ratio is a risk-return performance measure of an investment asset, portfolio, or strategy. It was devised by Con Keating and William F. Shadwick in 2002 and is defined as the probability weighted ratio of gains versus losses for some thres ...
*
Risk return ratio
The risk-return ratio is a measure of return in terms of risk for a specific time period. The percentage return (R) for the time period is measured in a straightforward way:
:R=\frac
where P_ and P_ simply refer to the price by the start and end o ...
References
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Financial ratios