Calmar Ratio
Definition
The Calmar Ratio measures the return of an investment relative to its maximum drawdown. It helps investors understand how much return they are getting for the worst loss experienced during a period. A higher Calmar Ratio means better performance with lower downside risk.
Why It Matters to Investors
- Focuses on protecting capital by comparing returns to worst-case losses
- Highlights how recoverable an investment strategy is after a downturn
- Useful for evaluating trend-following or systematic strategies
- Helps identify portfolios that manage risk without sacrificing growth
- More meaningful than volatility-based ratios for long-term investors
The TiltFolio View
We value the Calmar Ratio because it directly compares long-term return with the largest observed loss. In real-world investing, compounding is interrupted by large drawdowns. A strategy that grows steadily without major setbacks is far more likely to build wealth over time.
TiltFolio Adaptive's trend-following system maintains a Calmar Ratio around 0.7, significantly higher than that of a typical 60/40 portfolio or even the S&P 500. TiltFolio Balanced also achieves strong Calmar Ratios through its diversified allocation approach. Both systems reflect our focus on downside protection and steady compounding.
Investors often underestimate the impact of drawdowns. The Calmar Ratio keeps this risk front and center.
Real-World Application
• The S&P 500 has a long-term Calmar Ratio around 0.2 due to deep drawdowns like 2008 and 2020
• A diversified portfolio might score around 0.4 depending on the timeframe
• TiltFolio's trend-following strategy shows a Calmar Ratio around 0.7, indicating better resilience in downturns