Calmar Ratio

Calmar is the risk-adjusted yardstick that maps most directly to the trader's lived experience of a strategy. A 15 percent annual return paired with a 5 percent max drawdown is a 3.0 Calmar — the trader earned three units of return for every unit of peak-to-trough pain. The same 15 percent paired with a 30 percent max drawdown is a 0.5 Calmar, and is the strategy most traders quit during the drawdown.

Calmar's advantage over Sharpe is that drawdown captures fat-tail behavior that standard deviation misses. A strategy can show low standard deviation right up to the day it doesn't, and Calmar will catch the disaster that Sharpe glossed over. Its disadvantage is that drawdown is sensitive to the time window — Calmar over three years and Calmar over ten years can be very different numbers for the same strategy.

Useful benchmarks for a discretionary trading book: a sustained Calmar above 1.0 over multi-year horizons is good, above 2.0 is exceptional, and below 0.5 says the drawdowns are large relative to the return earned for them.