Posts tagged ‘Optimization Criteria’
Over the years I’ve experimented with a slew of optimization metrics, from the simple to the exotic and almost everything in between. But the metric that has become my “Go To” ranking criteria is the humble Calmar Ratio (sometimes called the MAR, RAR, or the Sterling Ratio).
The Calmar Ratio is simply the annualized return divided by the maximum peak-to-trough equity curve drawdown during the time period in question. It is effectively the risk-adjusted (or risk-normalized) return of a system.
So what’s so magic about the Calmar? In short, it captures the essence of what separates a “good” equity curve from a “bad” one in a very simple and compact equation.
Which begs the question: “What exactly makes a good equity curve?”.