![]() ![]() GeomCalmar CalmarRatio(stratRetsAggressive]) So here’s a function to compute the geometric calmar ratio: In order to capture this dynamic, we should write a new Calmar ratio to express this idea. In any case, in order to recover from such losses, it’s clear that a strategy would need to make back a lot more than what it lost. 5 (in other words, if those guys were professionals, what does that make me? Or if I’m an amateur, what does that make them?). But in the context of a hedge fund trying to create large, market-beating returns for its investors, those hedge funds can have fairly substantial drawdowns.Ĭitadel–one of the gold standards of the hedge fund industry, had a drawdown of more than 50% during the financial crisis, and of course, there was at least one fund that blew up in the storm-in-a-teacup volatility spike on Feb. Or, it makes sense in the context of “every year, we withdraw all profits and deposit to make up for any losses”. If an investment manager is looking to create a small, meager return for their clients, and is looking to make somewhere between 5-10%, then sure, the Calmar ratio approximation and interpretation makes sense in that context. Put another way, it means that on average, a strategy will make money at the end of 252 trading days.īut, that isn’t really the case in all circumstances. ![]() That is, if a strategy makes 10% a year (on average), and has a loss of 10%, well, intuition serves that from that point on, on average, it’ll take about a year to make up that loss–that is, a Calmar ratio of 1. So, one thing that recently had me sort of annoyed in terms of my interpretation of the Calmar ratio is this: essentially, the way I interpret it is that it’s a back of the envelope measure of how many years it takes you to recover from the worst loss. This post will discuss the idea of the geometric Calmar ratio - a way to modify the Calmar ratio to account for compounding returns. ![]()
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