What Is a MAR Ratio?

A MAR ratio is a measurement of returns adjusted for risk that can be used to compare the performance of commodity trading advisors, hedge funds, and trading strategies. The MAR ratio is calculated by dividing the 澳洲幸运5官方开奖结果体彩网:compound annual growth rate (CAGR) of a fund or strategy since its inception by its most significant drawdown. The higher the ratio, the b🙈etter the risk-adjusted retur🏅ns.

The MAR ratio gets its name from the Managed Accounts Report newsletter, i๊ntroduced in 1978 by Leon Rose, a publisher of various financial newsletters who developed this metric.

Understanding a MAR Ratio

The compound annual growth rate is the 澳洲幸运5官方开奖结果体彩网:rate of return of an investment from start to finish, with annual returns t𓂃hat are reinvested. A drawdown of a fund or strategy is its worst performance during the specified time period.

For example, in a given year, say every month a fund had a return performance of 2% or more, but in one month it had a loss of 5%, the 5% would be tꦅ🅺he drawdown number. The MAR ratio seeks to analyze the worst possible risk (drawdown) of a fund to its total growth. It standardizes a metric for performance comparison.

For example, if Fund A has registered a compound annual growth rate (CAGR) of 30% since inception, and has had a 澳洲幸运5官方开奖结果体彩网:maximum drawdown of 15% in its history, its MAR ratio is 2. If Fund B has a CAGR of 35% and a maximum drawdown of 20%, its MAR ratio is 1.75. While Fund B has a higher absolute growth rate, on a risk-🌌adjusted basis, Fund A would be deemed to be superior because of꧂ its higher MAR ratio.

MAR Ratio vs. Calmar Ratio

But what if Fund B has been in existence for 20 years and Fund A has only been operating for five years? Fund B is likely to have weathered more 澳洲幸运5官方开奖结果体彩网:market cycles by virtue of its lꦯonger existence, while Fund A may only have operated in more favorable🐲 markets.

This is a key drawback of the MAR ratio since it compares results and drawdowns since inception, whi𓄧ch may result in vastly differing periods and market conditions across different funds ℱand strategies.

This drawback of the MAR ratio is overcome by another performance metric known as the 澳洲幸运5官方开奖结果体彩网:Calmar ratio, which considers compouไnd annual returns and drawdowns for the past 36 months only, rather than since inception.

The MAR ratio and the Calmar ratio result in vastly different numbers given the time period being analyzed. The Calmar ratio is usually a more 🅷preferrওed ratio as it compares apples to apples in terms of timeframe, hence being a more accurate representation of comparing multiple funds or strategies.

Other popular ratios that compare performance to risk are the 澳洲幸运5官方开奖结果体彩网:Sharpe ratio and the 澳洲幸运5官方开奖结果体彩网:Sortino ratio.