The Calmar Ratio
What Is the Calmar Ratio?
The Calmar ratio is a measure of the performance of investment funds, for example, hedge funds and commodity trading advisors (CTAs). It is a function of the fund's average intensified annual rate of return versus its maximum drawdown. The higher the Calmar ratio, the better it performed on a risk-adjusted basis during the given time span, which is for the most part usually set at 36 months.
Calmar Ratio History
The Calmar ratio was developed and presented in 1991 by Terry W. Youthful, a California-based fund manager. He contended that the ratio offered a more cutting-edge perusing of a fund's performance than the Sterling or Sharpe ratios, other usually utilized checks, since it was calculated month to month while they were done annually. The month to month update additionally made the Calmar ratio smoother than what Young called the "too delicate" Sterling ratio.
The Calmar ratio is, truth be told, a modified variant of the Sterling ratio. Its name is an abbreviation for California Managed Account Reports. Youthful likewise alluded to the Calmar ratio as the Drawdown ratio.
The Calmar Ratio's Strengths and Weaknesses
One strength of the Calmar ratio is its utilization of the maximum drawdown as a measure of risk. For a certain something, it's more justifiable than other, more abstract risk checks, and this makes it ideal for certain investors. Also, even however it is refreshed month to month, the Calmar ratio's standard three-year time period makes it more dependable than different measures with more limited time spans that may be more impacted by natural market volatility.
On the flip side, the Calmar ratio's focus on drawdown means it's perspective on risk is fairly limited contrasted with different checks, and it disregards general volatility. This makes it less measurably huge and valuable.
In any case, the risk-adjusted nature of the Calmar ratio makes it among numerous conceivable investment performance measures, however it is one of the less popular checks of risk-adjusted returns. Truth be told, William Sharpe, maker of the Sharpe, won the Nobel Prize in economics in 1990 for his work on capital asset pricing theory.
- The Calmar ratio is a measure of risk-adjusted returns for investment funds, made by fund manager Terry Young in 1991.
- The Calmar ratio utilizes a fund's maximum drawdown as its sole measure of risk, which makes it unique. This could likewise be viewed as one of its shortcomings.