What Is a Calmar Ratio?

By Lee Samaha – Updated Dec 31, 2024 at 4:34 PM

Key Points

The Calmar ratio measures a fund's return against its risk, calculated by dividing annual return by maximum drawdown.
Fund B, despite a larger drawdown, scores highest in Calmar ratio, indicating a preference for higher returns over lower risk.
The Calmar ratio may not suit all investors; different risk/reward profiles need broader performance analysis tools.

Asset managers like to laud their returns to potential investors, but investors also need to consider risk. A manager following a highly volatile strategy can quickly generate stellar returns over a period, only to crush investor dreams with a crash in the following one.

Moreover, some investors value stability and actively seek funds that give up the potential for higher returns in favor of reducing drawdowns. With these considerations in mind, the Calmar ratio is a valuable tool to help measure the suitability of a fund.

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Calmar Ratio — Image source: Getty Images.

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Data source: Author's analysis.
Fund	Year 1 Return	Year 2 Return	Year 3 Return	Average Annual Return	Maximum Drawdown	Calmar Ratio
A	10%	(5%)	1%	2%	5%	0.4
B	32%	(12%)	45%	22%	12%	1.81
C	25%	45%	(33%)	12%	33%	0.37

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About the Author

Lee Samaha is a contributing Stock Market Analyst at The Motley Fool covering industrials, electricals, energy, materials, transportation, and infrastructure stocks. Prior to The Motley Fool, Lee was a Civil Engineer and Investment Manager. He holds a Bachelor of Civil and Structural Engineering from Southampton University and a Certificate in Investment Management from Chartered Institute for Securities & Investment. Lee first cut his investing teeth on The Motley Fool bulletin boards (commonly referred to as the “Fool Boards,”) and he’s infinitely grateful to all of the investors he learned from in this powerful investing community.

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