Calmar Ratio Calculation

Installations & Python Packages
1

Course Name: Swing Trading Strategies, Section No: 13, Unit No: 8, Unit type: Notebook

Hello,

why if the formula for Calmar is the same as Sharpe and Sortino ratio and only change that we're dividing by Max. DD are we using annualized returns in the dividend instead of the (mean of returns / std of returns - risk-free rate) as we did in Sharpe and Sortino?

 

2

Check the differences between Calmar and Sharpe&Sortino:



3

Also note how we're calculating the annualized returns for calmar:





Instead of:





The same method we used above in this notebook.

4

Hi Daniel,



We will check this and get back to you

5

Hi Daniel,


  • Traditionally, mean returns in the Sharpe and Sortino ratios is used because they compare returns to volatility or downside risk over the same period.
  • The Calmar ratio, however, compares returns to the maximum drawdown, which is a longer-term risk measure. Annualizing the returns for the Calmar ratio aligns with this longer-term perspective.



    To understand this difference you can also refer to the blogs mentioned in the additional readings provided in Section 13 Unit 16 of the course.



    Thanks

    Rushda
6

Is it not correct to calculate Sharpe and Sortino using annualized returns and annualized volatility as we're using annualized returns for Calmar?

7

Hi Daniel,



Yes your understanding is correct, we will be making the necessary changes in the notebook too.



Thanks!