MAR Ratio

DEFINITION of 'MAR Ratio'

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 compound annual growth rate (CAGR) of a fund or strategy since inception by its biggest drawdown. The higher the ratio, the better the risk-adjusted returns. The MAR Ratio gets its name from the Managed Accounts Report newsletter, which developed this metric.

BREAKING DOWN 'MAR Ratio'

For example, if Fund A has registered a compound annual growth rate of 30% since inception, and has had a 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 the higher absolute growth rate, on a risk-adjusted basis, Fund A would be deemed to be superior because of its higher MAR 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 market cycles by virtue of its longer 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, which may result in vastly differing periods and market conditions across different funds and strategies. This drawback of the MAR Ratio is overcome by another performance metric known as the Calmar ratio, which considers compound annual returns and drawdowns for the past 36 months only, rather than since inception.

RELATED TERMS
  1. Sterling Ratio

    A ratio used mainly in the context of hedge funds. This risk-reward ...
  2. Calmar Ratio

    A comparison of the average annual compounded rate of return ...
  3. Return Over Maximum Drawdown (RoMaD)

    Return over Maximum Drawdown (RoMaD) is a risk-adjusted return ...
  4. Drawdown

    The peak-to-trough decline during a specific record period of ...
  5. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth ...
  6. Drawdown Percentage

    The portion of a retirement account that a retiree withdraws ...
Related Articles
  1. Fundamental Analysis

    What's a Drawdown?

    A drawdown is usually expressed as a percentage change between the peak price and the low price (trough) of an investment.
  2. Mutual Funds & ETFs

    Downside Capture, Drawdown And Leverage

    Downside Capture, Drawdown And Leverage
  3. Mutual Funds & ETFs

    10 American Funds Mutual Funds with Long Track Records

    Learn about the performance of the mutual funds offered by Capital Group's American Funds that have the longest established track records.
  4. Personal Finance

    Jacqueline Mars ($13.8 billion)

    Here is a list of the richest women in the U.S.
  5. Mutual Funds & ETFs

    Hedge Funds: Risks

    By Dan BarufaldiHedge funds are often mistaken to be very similar in risk to other types of investments, and although they are often measured through the same types of quantitative metrics, hedge ...
  6. Trading Strategies

    Advantages of Pairs Trading

    Pairs trading is a market-neutral strategy that boasts several advantages: Controlled risk Central to pairs trading is the matching of a long position with a short position in a related, or correlated, ...
  7. Mutual Funds & ETFs

    Pay Attention To Your Fund’s Expense Ratio

    Even small differences in an expense ratio can have a big impact on a portfolio.
  8. Mutual Funds & ETFs

    Absolute Returns & The Sharpe Ratio

    Absolute Returns & The Sharpe Ratio
  9. Forex Education

    Compound Annual Growth Rate: What You Should Know

    The CAGR is a good and valuable tool to evaluate investment options, but it does not tell the whole story.
  10. Mutual Funds & ETFs

    Hedge Funds: Performance Measurement

    By Dan BarufaldiIf you read the description of most hedge fund investment objectives, there is usually some mention of absolute returns. It is this goal that makes hedge funds so attractive, ...
RELATED FAQS
  1. How do drawdowns help assess investment risk?

    Learn how the concepts of drawdowns and maximum drawdowns are used in the analysis of risk, as well as in the building of ... Read Answer >>
  2. What is the difference between a drawdown in banking and a drawdown in trading?

    Understand the two completely different meanings of the term ''drawdown'' as it is applied within the contexts of trading ... Read Answer >>
  3. What is the difference between a drawdown magnitude and drawdown duration?

    Learn about the two different measures of drawdown, magnitude and duration, and why it's critical for traders to understand ... Read Answer >>
  4. What trading strategies help investors withstand a drawdown?

    Understand the concept of drawdown and the importance for traders of having a trading strategy that takes temporary drawdown ... Read Answer >>
  5. What is a drawdown arrangement?

    Find out what a drawdown arrangement is, how it differs from a normal annuity, and why they form an important part of retirement ... Read Answer >>
  6. What are the advantages and disadvantages of zero-based budgeting in accounting?

    Learn how the information ratio is calculated as a risk-adjusted measure of performance, and understand how it seeks to differentiate ... Read Answer >>
Hot Definitions
  1. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  2. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  3. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  4. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  5. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  6. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
Trading Center