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MAR Ratio

MAR Ratio
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What Is a MAR Ratio?

A MAR ratio is a measurement of returns adjusted for risk that can be utilized to compare the performance of commodity trading advisors, hedge funds, and trading strategies. The MAR ratio is calculated by separating the compound annual growth rate (CAGR) of a fund or strategy since its beginning by its most critical drawdown. The higher the ratio, the better the risk-adjusted returns.

The MAR ratio gets its name from the Managed Accounts Report bulletin, presented in 1978 by Leon Rose, a distributer of different financial pamphlets who developed this measurement.

Grasping a MAR Ratio

The compound annual growth rate is the rate of return of an investment beginning to end, with annual returns that are reinvested. A drawdown of a fund or strategy is its most terrible performance during the predefined time span.

For instance, in a given year, say consistently a fund had a return performance of 2% or more, however in one month it had a loss of 5%, the 5% would be the drawdown number. The MAR ratio looks to investigate the absolute worst risk (drawdown) of a fund to its total growth. It normalizes a measurement for performance comparison.

For instance, if Fund A has registered a compound annual growth rate (CAGR) of 30% since beginning, and has had a maximum drawdown of 15% in its history, its MAR ratio is 2. On the off chance that Fund B has a CAGR of 35% and a maximum drawdown of 20%, its MAR ratio is 1.75. While Fund B has a higher absolute growth rate, on a risk-adjusted basis, Fund A would be considered to be unrivaled in light of its higher MAR ratio.

MAR Ratio versus Calmar Ratio

In any case, imagine a scenario in which Fund B has been in presence for a considerable length of time and Fund A has just been operating for five years. Fund B is probably going to have endured more market cycles by ideals of its more drawn out presence, while Fund A may just have operated in additional positive markets.

This is a key drawback of the MAR ratio since it compares results and drawdowns since beginning, which might result in tremendously varying periods and market conditions across various funds and strategies.

This drawback of the MAR ratio is overwhelmed by one more performance metric known as the Calmar ratio, which thinks about compound annual returns and drawdowns for the past 36 months just, as opposed to since commencement.

The MAR ratio and the Calmar ratio bring about boundlessly various numbers given the time span being broke down. The Calmar ratio is generally a more preferred ratio as it compares similar things in terms of time span, thus being a more accurate representation of looking at numerous funds or strategies.

Other famous ratios that compare performance to risk are the Sharpe ratio and the Sortino ratio.

Features

  • Since the MAR ratio takes a gander at performance since commencement, one of its drawbacks for comparisons isn't thinking about the different time periods funds or strategies have been in presence.
  • The MAR ratio is a measurement of performance returns, adjusted for risk.
  • To work out the MAR ratio, partition the compound annual growth rate (CAGR) of a fund or strategy since initiation and afterward partition by its biggest drawdown.
  • The performance of commodity trading advisors, hedge funds, and trading strategies can all measure up by utilizing a MAR ratio.
  • The Calmar ratio is another ratio that measures similar metrics however rather just ganders at the past 36 months.