Presumably the whole point of the calmar ratio is to normalise the performance of systems to be able to compare them easily.
As in - if you read that a system produced a 50% gain last year, that really gives you little information on the system other than the fact that it has a positive expectancy.
We also need to know the worst DD to achieve this 50% return.
I think most would select a system that produces 40% return with 5% DD rather than one that returns 50% with a 50% DD.
Ok. So i know how the text books calculate the calmar ratio.It is the CAGR over the last 3 years divided by the max drawdown in that period.
SO using the 2 above examples, the first system has a calmar ratio of 8 (40%/5%) and the other has a calmar ratio of 2 (50%/25%).
Basically - the idea is the higher the calmar ratio the better. That way regardless of how much risk per bet someone takes the drawdown will be proportional (along with returnes). So it effectively normalises it thereby allowing each person to place wwhatever risk they want.
That's all well and good. Sounds easy right?
Well...not really.
Lets look at the first example again.
It has a return of 40%. Lets assume each bet places is 2% - and you compound at the beginning of each month. That means a monthly compounded return of slightly below 3%. (2.9%)
If you double your risk per bet (i.e. 4% per bet) your monthly return now rises to just under 6% (5.8)
Your annual return now rises to c. 100% And your DD also doubles to 10%.
So in this instance you now have a calmar ratio of 10 !!! (It was originally 8)
I thought the whole point of the calmar ratio was to return the same figure regardless of what someone risks.
It seems if you want to advertise a system yiu c\n just take on increased risk on each bet to increzse the calmar ratio 0- butif course what this does not reveal is the extent iof the DD as a result iof increasing the bet size.
If not, then just what is the point of the calmarr ratio?
And is there any other ratio that does behave like i expected the calmar ratio to behave?
As in - if you read that a system produced a 50% gain last year, that really gives you little information on the system other than the fact that it has a positive expectancy.
We also need to know the worst DD to achieve this 50% return.
I think most would select a system that produces 40% return with 5% DD rather than one that returns 50% with a 50% DD.
Ok. So i know how the text books calculate the calmar ratio.It is the CAGR over the last 3 years divided by the max drawdown in that period.
SO using the 2 above examples, the first system has a calmar ratio of 8 (40%/5%) and the other has a calmar ratio of 2 (50%/25%).
Basically - the idea is the higher the calmar ratio the better. That way regardless of how much risk per bet someone takes the drawdown will be proportional (along with returnes). So it effectively normalises it thereby allowing each person to place wwhatever risk they want.
That's all well and good. Sounds easy right?
Well...not really.
Lets look at the first example again.
It has a return of 40%. Lets assume each bet places is 2% - and you compound at the beginning of each month. That means a monthly compounded return of slightly below 3%. (2.9%)
If you double your risk per bet (i.e. 4% per bet) your monthly return now rises to just under 6% (5.8)
Your annual return now rises to c. 100% And your DD also doubles to 10%.
So in this instance you now have a calmar ratio of 10 !!! (It was originally 8)
I thought the whole point of the calmar ratio was to return the same figure regardless of what someone risks.
It seems if you want to advertise a system yiu c\n just take on increased risk on each bet to increzse the calmar ratio 0- butif course what this does not reveal is the extent iof the DD as a result iof increasing the bet size.
If not, then just what is the point of the calmarr ratio?
And is there any other ratio that does behave like i expected the calmar ratio to behave?
