MAR Ratio

AAA

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.

INVESTOPEDIA EXPLAINS '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. Hedge Fund

    An aggressively managed portfolio of investments that uses leveraged, ...
  2. Compound Annual Growth Rate - CAGR

    The year-over-year growth rate of an investment over a specified ...
  3. Peak-To-Valley Drawdown

    A fund or money manager's largest cumulative percentage decline ...
  4. Drawdown

    The peak-to-trough decline during a specific record period of ...
  5. Calmar Ratio

    A comparison of the average annual compounded rate of return ...
  6. Risk-Adjusted Return

    A concept that refines an investment's return by measuring how ...
RELATED FAQS
  1. What is the 12b-1 fee meant to cover?

    A 12b-1 fee in a mutual fund is meant to cover the fees of companies and individuals through which investors of a fund buy ... Read Full Answer >>
  2. Which federal regulatory agencies approved and are now responsible for enforcing ...

    Five federal regulatory agencies approved and are jointly responsible for enforcing the Volcker rule. These agencies include ... Read Full Answer >>
  3. What is the purpose of the Volcker Rule?

    The Volcker rule limits two main types of activities by large institutional banks. Banks are prohibited from engaging in ... Read Full Answer >>
  4. What types of positions might a Chartered Financial Analyst (CFA) hold?

    The types of positions that a Chartered Financial Analyst (CFA) is likely to hold include any position that deals with large ... Read Full Answer >>
  5. What does a high information ratio tell an investor about a mutual fund?

    A high information ratio tells an investor that the sustained performance of a mutual fund's active manager is high and that ... Read Full Answer >>
  6. Why is Manchester United (MANU) carrying so much debt?

    The takeover of Manchester United by the Glazer family beginning in 2005 saddled the historic club with substantial amounts ... Read Full Answer >>
Related Articles
  1. Bonds & Fixed Income

    Is Your Portfolio Beating Its Benchmark?

    Compare portfolio manager performance using the information ratio.
  2. Options & Futures

    Your Futures Are In Good Hands With CTAs

    Profit from up, down and sideways markets with commodity trading advisors.
  3. Investing Basics

    Is Stock Picking A Myth?

    Find out if mutual fund managers can successfully pick stocks or if you're better off with an index fund.
  4. Options & Futures

    An Introduction To Managed Futures

    Their inverse correlation with stocks and bonds make these alternative investments worth getting to know.
  5. Forex Education

    How To Trade Currency And Commodity Correlations

    Relationships between currencies and commodities exist throughout the financial markets. Find out how to trade these trends.
  6. Options & Futures

    Hotshots Needed For Commodity Trading Advisor Positions

    If you can multi-task and you enjoy a good challenge, this lucrative career could be a perfect fit.
  7. Trading Systems & Software

    Interpreting A Strategy Performance Report

    These key performance metrics will help you decide if your trading strategy is a winner.
  8. Fundamental Analysis

    Gauge Portfolio Performance By Measuring Returns

    Calculate returns frequently and accurately to ensure that you're meeting your investing goals.
  9. Trading Systems & Software

    Backtesting And Forward Testing: The Importance Of Correlation

    Correlations between backtesting and forward performance testing results can help you optimize your trading system.
  10. Chart Advisor

    Falling Coffee Prices Are Creating Opportunity

    Falling coffee prices is creating an opportunity for strategic traders. We'll take a look at some ideas.

You May Also Like

Hot Definitions
  1. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  2. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  3. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  4. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  5. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
  6. Grandfathered Activities

    Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!