What it means
Calmar ratio measures annual return relative to maximum drawdown. Formula: annualized return / |max drawdown|. A 30% annual return with 15% max drawdown = Calmar of 2.0. Used heavily in CTA / managed futures evaluation because it focuses on the single worst-case scenario rather than abstract volatility measures.
Why it matters
Investors care about drawdown more than volatility — drawdowns are felt; volatility is statistical. Calmar speaks directly to 'how much do I make for the worst drawdown I have to endure.' Useful when comparing strategies that have very different volatility profiles but similar drawdown characteristics.
How to use it
Compute Calmar over 3+ years of history (shorter windows are too sample-dependent). Use 36-month rolling Calmar to compare strategies; a Calmar > 1.0 is acceptable, > 2.0 is strong, > 3.0 is exceptional. Combine with Sharpe/Sortino for a fuller risk picture.
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