Return means little without the risk required.
Compare strategies fairly using Sharpe, Sortino, Calmar, and Information ratios—then challenge every score with context.
One return. Four definitions of risk.
No ratio is universally best. Choose the denominator that matches the experience and mandate you actually care about.
Sharpe ratio
(Return − risk-free rate) ÷ volatility
Useful for broad comparison when upside and downside variability are treated equally.
Sortino ratio
(Return − target) ÷ downside deviation
Focuses on returns below a target, avoiding a penalty for beneficial upside volatility.
Calmar ratio
Annual return ÷ maximum drawdown
Connects reward to the deepest observed capital decline and is sensitive to the sample window.
Information ratio
Active return ÷ tracking error
Evaluates consistency of outperformance relative to a chosen benchmark.
Standardise before ranking
A precise ratio built from inconsistent inputs is still a misleading ratio.
Risk-adjusted scorecard
Compare the same return through four different risk lenses. Use annualised inputs measured over the same period.
Sharpe ratio
1.17
Reward relative to total volatility
Sortino ratio
1.75
Reward relative to downside deviation
Calmar ratio
1.20
Reward relative to maximum drawdown
Information ratio
1.33
Reward relative to tracking error
How ratios mislead
Short samples
A favourable regime can make an unstable strategy look exceptional.
Smoothed returns
Illiquid pricing can suppress measured volatility and inflate Sharpe.
Hidden tails
A strong average ratio can coexist with rare, catastrophic losses.
Risk Management course complete
You now have a complete risk operating system.
Position size controls the trade. VaR and ES describe the tail. Drawdown measures the path. Correlation reveals hidden concentration. Risk-adjusted returns judge the reward earned for carrying it all.