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Calmar Ratio

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Definition of 'Calmar Ratio'

The Calmar Ratio is a ratio used to calculate the return of a hedge fund relative to the downside risk (drawdown).


CR = Calmar Ratio
CAR = Compounded Annual Return
MD = Maximum Drawdown (use the absolute value - i.e. ignore negative sign)

The Calmar Ratio is typically calculated from 36 months (3 years) worth of data. The higher the Calmar Ratio the better; this is an indication that the return of the fund has not been at the risk of large drawdowns. This is useful when comparing the return of two different funds.

The Calmar Ratio is a performance measurement used to evaluate Commodity Trading Advisors (CTA's) and hedge funds. It was created by Terry W. Young and first appear in the trade journal Futures in 1991.

Mr 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.

The Calmar Ratio was original defined by Terry Young as: ...using a slightly modified Sterling Ratio - average annual rate of return for the last 36 months divided by the maximum drawdown for the last 36 months - and calculates it on a monthly basis, instead of the Sterling ratio's yearly basis.

Young believed the Calmar ratio was superior because
The Calmar Ratio changes gradually and serves to smooth out the over-achievement and underachievement periods of a CTA's performance more readily than either the Sterling Ratio or Sharpe Ratio.

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