# Calmar ratio

In this article, you'll learn about the Calmar ratio and how it's calculated in Composer.

**What is the Calmar ratio?**

The Calmar ratio, also called the drawdown ratio, is a measure of risk-adjusted return. It was developed by Terry Young, who owned the investment management company California Managed Accounts. **Calmar is an acronym for CALifornia Managed Accounts Reports**, the name of the company’s newsletter.

The Calmar ratio is an investment’s annualized rate of return divided by its max drawdown for a selected time period.

**An example**

Let’s take a look at an example. In this backtest, we see the symphony’s Calmar ratio is 1.34 while the benchmark’s ($SPY) is 0.50. This means that the symphony had a better risk-adjusted return than the benchmark over the backtest time period.

**What is the formula?**

**What is the step-by-step calculation?**

Let's go through the calculation of the Calmar ratio step-by-step for a symphony backtest. Here's how we do it:

Calculate the annualized rate of return.

- Compute the cumulative percent return of the symphony for the time between the first and last date in the backtest.
- Add one to that value.
- Raise that result to the (252/N) power, where N is the number of trading days in the backtest.
- Subtract 1 from that result.

Calculate the maximum drawdown. For the maximum drawdown, we'll look at each value in the backtest period, and keep track of two quantities: the maximum value we've seen and the maximum drawdown we've seen, up to that point.

- Start with both the maximum value and the maximum drawdown value set to 0, and consider each day's value in chronological order.
- If a value is greater than the maximum value we've seen so far, record it as such.
- If not, compute the magnitude of the percentage loss between the maximum value we've seen so far, and the value we are observing; this is the drawdown.
- If this drawdown is greater than the maximum drawdown we've seen so far, record it as such.
- Repeat the above steps until we've observed every value.
- The maximum drawdown we've recorded when we've finished observing all the values is the maximum drawdown over the period.

Divide the annualized rate of return by the maximum drawdown.