Sharpe, Sortino and Calmar: which risk-adjusted ratio to look at

Return alone rewards the accounts that survived by luck. Risk-adjusted ratios try to fix that - each by dividing the return by a different flavour of pain. Here is what each of them actually measures, and why you should look at more than one.

Sharpe: return per unit of total volatility

Sharpe = mean(daily return) / stdev(daily return) × √365

Sharpe penalises all movement, up and down. A trader whose equity curve jumps +8% and −8% in alternating days gets a low Sharpe even if the net result is positive - which is exactly what a grid looks like. Sharpe is the most widely quoted ratio and the most misunderstood: a high value does not mean "safe", it means "returned a lot relative to how much it wobbled".

We compute Sharpe from our own daily series. Our rating penalises it linearly: +1.0 and better costs nothing, 0 costs 6 points, −0.5 costs 9.

Sortino: return per unit of downside volatility

Sortino = mean(daily return) / stdev(negative daily returns) × √365

Sortino ignores upside volatility, which is arguably more correct for an account you cannot hold during a −40% day. A trader with violent upward moves and controlled losses scores better on Sortino than on Sharpe. Useful when comparing two accounts with very different return profiles.

Calmar: return per unit of maximum drawdown

Calmar = (window return) / max drawdown of the equity curve

Calmar is the ratio that matches how followers actually experience risk: it asks "how much did I get for the worst thing I had to live through". An account with +40% and a 20% drawdown has Calmar 2.0. An account with +120% and a 90% drawdown has Calmar 1.3 - worse, despite being three times richer.

Caveat: Calmar needs a drawdown to exist. On an account that has never fallen below its peak in the window, the denominator is zero and the ratio is undefined - we show a dash rather than a number.

Ulcer Index: how long the pain lasted

Ulcer = √(average(drawdown²))

Ulcer measures the area of the drawdown curve, not its depth. Two accounts can both have a 20% max drawdown; one recovers in a week, the other spends three months underwater. Ulcer separates them cleanly. It is the least known ratio here and one of the most informative for a follower.

Our rating, and how the ratios feed it

Component	Source	Penalty
Daily volatility	our daily series	0 at 5%/day → −15 at 40%
Max drawdown	our compound curve	0 at 15% → −20 at 100%
Sharpe	our daily series	0 at 1.0 → −9 at −0.5
Exchange Stability Index	exchange, 0–5	0 at 5 → −10 at 2

The rating does not use Calmar or Ulcer directly. They are shown on the trader page so that you can see the shape of the risk behind the score: a high rating with a poor Ulcer means the account earned its points quickly and then sat underwater.

Practical advice

1. Start with the rating. It already aggregates the risk side into one number.
2. Then look at Sharpe and Calmar together. If Sharpe is high and Calmar is low, the account has deep, concentrated drawdowns - a grid, or a single event.
3. Check Ulcer when the two disagree. It is the tie-breaker between a quick dip and a long underwater period.
4. Ignore any single ratio from a screenshot. All four are easy to quote and hard to reproduce; our numbers come from the same daily series the rating uses.

None of these ratios predicts the future. They are a way to compare accounts on the same basis - the rating is a way to do it in one number.