Calmar Ratio

Calmar Ratio is a performance measurement used to evaluate
Commodity Trading Advisors and hedge funds.It was created by Terry W. Young and first published in 1991 in the trade journal "Futures" ["Futures" magazine, 01 October 1991,"Calmar Ratio: A Smoother Tool", Terry W. Young] .

Young owned California Managed Accounts, a firm in Santa Ynez, California, whichmanaged 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.Young defined it thus:

"The Calmar ratio uses 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 overachievement""and underachievement periods of a CTA's performance more readily than either the""Sterling or Sharpe ratios."

It should be mentioned that a competitor newsletter, "Managed Account Reports"(founded in 1979 by publisher Leon Rose), had previously defined and popularizedanother performance measurement, the MAR Ratio, equal to the compound annualreturn "from inception", divided by the maximum drawdown"from inception".

Although the Calmar ratio and MAR ratio are sometimes assumed to be identical,they are in fact different: Calmar ratio uses 36 months of performance data,whereas MAR ratio uses all performance data from inception onwards.

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