Risk and return · updated October 21, 2026

What is the Calmar ratio and how is it calculated

The Calmar ratio divides the average yearly return by the largest drop from a peak over the same period. It shows how much you earned for the worst stretch you would have sat through.

The Calmar ratio formula

Calmar=Average annual return|Maximum drawdown|

Average annual return: The compound yearly gain, usually over the last 3 years.
Maximum drawdown: The largest fall from a peak, taken as a positive number.

Worked example

A stock returned 12% a year, and its largest drop was −30%.

12%annual return

30%maximum drawdown

0.4Calmar ratio

For every point of drop you sat through, you earned 0.4 points a year.

How to read the Calmar ratio

Below 0.3big drops for the gain

0.3 - 1typical

Above 1very good

Investors who cannot stomach big drops like it: it relates the return directly to the worst moment.

When the Calmar ratio can fool you

A single crisis dominates the calculation: one large, rare drop makes the ratio look weak for years.

Questions about the Calmar ratio

Why doesn't it use volatility?

Because many investors are hurt more by one big drop than by daily moves.

These explanations are for information only. They are not a recommendation to buy or sell.

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