> ## Documentation Index
> Fetch the complete documentation index at: https://kalpi.ai/docs/llms.txt
> Use this file to discover all available pages before exploring further.

# Calmar Ratio

> Assess your portfolio's compound annual returns relative to its worst-case drawdown risk.

The **Calmar Ratio** is a high-performance risk-adjusted return metric closely related to the Sharpe Ratio. However, while the Sharpe Ratio uses standard deviation (overall volatility) as its risk baseline, the Calmar Ratio relies exclusively on **Maximum Drawdown**.

This makes the Calmar Ratio exceptionally popular among hedge fund managers and system developers, as it measures performance directly against the worst-case capital loss scenario.

## The Formula

The Calmar Ratio evaluates a strategy's rolling performance over a multi-year horizon (historically a 3-year lookback):

$\text{Calmar Ratio} = \frac{\text{CAGR}}{\text{Maximum Drawdown}}$

## Calmar vs. Sharpe: Which is Better?

* **The Sharpe Limitation:** Standard deviation treats upside volatility (sudden massive spikes in profit) exactly the same as downside volatility (sudden drops).
* **The Calmar Edge:** The Calmar Ratio looks purely at systemic tail risk. If a portfolio has large price swings but never experiences a deep capital breakdown, its Calmar Ratio will remain highly favorable.

A Calmar Ratio above **2.0** is generally considered excellent, indicating that the strategy's annualized return is double its worst historical peak-to-trough drop.