Calculators
Risk-Ratio Calculator
Paste a return series and get Sharpe, Sortino, max drawdown and Calmar, the numbers every strategy is judged by.
Equity curve (growth of 1.00)
Sharpe measures return earned per unit of total risk (volatility), while Sortino only penalizes downside volatility, so it rewards strategies whose wobble is mostly to the upside. Max drawdown is the worst peak-to-trough drop your equity ever suffered, and Calmar weighs annual return against that worst drawdown. Higher Sharpe, Sortino and Calmar are better, and a smaller drawdown is better, but remember that a handful of data points make every one of these ratios noisy and easy to over-trust.
Educational tool. Ratios are annualized from the pasted series and assume i.i.d. periodic returns. Not investment advice.
Learn how it works
Five worked examples. Read a couple before you dive in, try to answer first, then reveal the solution.
Computing Sharpe from a short monthly series
Monthly returns (%): +2, −1, +3, 0, +1, −2. Estimate the annualized Sharpe ratio (assume a 0% risk-free rate).
Method: Sharpe = mean ÷ standard deviation, then × √(periods per year).
Show solution
- Mean = (2 − 1 + 3 + 0 + 1 − 2) ÷ 6 = 3 ÷ 6 = 0.5% per month
- Standard deviation (sample) ≈ 1.87%. (Deviations from the mean, squared, sum to 17.5; ÷ 5 = 3.5; √3.5 ≈ 1.87.)
- Monthly Sharpe = 0.5 ÷ 1.87 ≈ 0.27
- Annualized = 0.27 × √12 ≈ 0.27 × 3.46 ≈ 0.93
So this track record earns about 0.93 units of return per unit of risk per year, just under the ≈ 1.0 that is considered solid. The √12 scales a monthly figure up to a yearly one because returns stack up over 12 months.
What counts as a good Sharpe?
A strategy reports an annualized Sharpe ratio of 2.0. Is that good, and what do typical values mean?
Show solution
Rough industry rules of thumb:
- ≈ 1, decent, respectable for most long-only or discretionary strategies.
- ≈ 2, strong; returns are large relative to the ups and downs.
- ≈ 3 or more, excellent, and rare; be suspicious that it is over-fit or hiding a hidden risk.
- Below 0, the strategy lost money on average.
A Sharpe of 2.0 is strong: for every unit of volatility you earned twice as much return. But always ask over what period, and whether the risks are fully captured, a high Sharpe can mask rare, catastrophic losses.
Reading max drawdown off an equity curve
An account climbed to a peak of $12,000, then fell to a low of $9,000 before recovering. What is the maximum drawdown?
Show solution
Max drawdown = (peak − trough) ÷ peak = ($12,000 − $9,000) ÷ $12,000 = $3,000 ÷ $12,000 = 25%.
Max drawdown is the worst peak-to-valley drop the account ever suffered, here a 25% fall from the high-water mark. It answers the gut question: what is the most this would have hurt if I had bought in at the worst possible moment? Unlike volatility, it focuses only on the losses.
Why Sortino can beat Sharpe
Two funds show the same average return and the same Sharpe ratio, but Fund A's swings are mostly to the upside while Fund B's are symmetric. Which has the higher Sortino ratio, and why?
Show solution
Fund A. Sortino is built like Sharpe, return ÷ risk, but the risk term counts only downside moves (returns below zero, or below a target), ignoring upside volatility.
Fund A's volatility is mostly friendly upside surprises, so its downside deviation is small, which shrinks the denominator and lifts the Sortino ratio above its Sharpe. Whenever your losses are gentler than your gains are wild, Sortino > Sharpe. It rewards strategies that are volatile only in the good direction.
Calmar ratio
A strategy returned 15% annualized, and its worst peak-to-trough drawdown was 30%. Compute the Calmar ratio.
Show solution
Calmar = annual return ÷ max drawdown = 15% ÷ 30% = 0.5.
Calmar asks a very practical question: how much annual return do you earn per unit of worst-case pain? At 0.5, you make half a percent of return for each percent of maximum drawdown. Higher is better, many investors want Calmar ≥ 1 (return at least as large as the deepest drop). It is a favorite for trend-following and managed-futures programs.
What you'll learn
How the headline risk-adjusted performance metrics are computed and what each one really tells you about a strategy's quality.