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Definition

The average rate of return for the last 36 months divided by the maximum drawdown for the same period. It is usually calculated on a monthly basis. A negative value for the Calmar ratio means that the system or trader had a negative performance over the last three years. The ratio is also used to determine return relative to drawdown (downside) risk in a hedge fund. Generally speaking, the higher the Calmar ratio, the better. Some funds have high annual returns, but they also have extremely high drawdown risk. This ratio helps determine return on a downside risk adjusted basis. Most people use data from the past 3 years.

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