MAR Ratio

Filed Under » ,
Dictionary Says

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 Says

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.

Articles Of Interest

  1.

    Is Your Portfolio Beating Its Benchmark?

    Compare portfolio manager performance using the information ratio.

  2. Your Futures Are In Good Hands With CTAs

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

  3. 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. An Introduction To Managed Futures

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

  5. 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. 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. Interpreting A Strategy Performance Report

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

  8. Gauge Portfolio Performance By Measuring Returns

    Calculate returns frequently and accurately to ensure that you're meeting your investing goals.

  9. Backtesting And Forward Testing: The Importance Of Correlation

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

  10. The Copper King: An Empire Built On Manipulation

    Find out how Yasuo Hamanaka's actions in the copper market forever changed the rules for commodity traders.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Network Effect

    A phenomenon whereby a good or service becomes more valuable when more people use it. The internet is a good example...

  2. Racketeering

    Racketeering refers to criminal activity that is performed to benefit an organization such as a crime syndicate. Examples of racketeering activity include...

  3. Lawful Money

    Any form of currency issued by the United States Treasury and not the Federal Reserve System, including gold and silver coins, Treasury notes, and Treasury bonds. Lawful money stands in contrast to fiat money, to which the government assigns value although it has no intrinsic value of its own and is not backed by reserves.

  4. Fast Market Rule

    A rule in the United Kingdom that permits market makers to trade outside quoted ranges, when an exchange determines that market movements are so sharp that quotes cannot be kept current.

  5. Absorption Rate

    The rate at which available homes are sold in a specific real estate market during a given time period.

  6. Yellow Sheets

    A United States bulletin that provides updated bid and ask prices as well as other information on over-the-counter (OTC) corporate bonds...
Trading Center