Sharpe, Sortino, Calmar: the differences

These three ratios share one idea (return relative to risk) but do not put the same thing in the denominator.

All measure excess return per unit of risk. What changes is the definition of risk.

Sharpe: total volatility

The denominator is the standard deviation of all returns. It treats upside and downside swings the same way.

Sortino: downside volatility

The denominator keeps only returns below a threshold (often zero or the risk-free rate). A fund that jumps up sharply but never falls hard will have a Sortino clearly better than its Sharpe.

Calmar: maximum loss

Annualised return divided by the absolute value of the maximum drawdown (the worst peak-to-trough loss). Calmar speaks to the investor who fears the worst case above all: how much do I earn per year for each point of maximum loss endured?

Using them together

A Sharpe and a Sortino that are close indicate symmetric returns. A Sortino well above the Sharpe signals mostly upside volatility, generally a good sign. A weak Calmar despite a good Sharpe reveals a fund prone to occasional severe drops.

See all three ratios for each fund →