Not to be confused with the "calmer ratio," which is the proportion of time spent in traffic thinking about how nice it would be to chuck it all and move to a tropical island, where you'd subsist by selling shell necklaces to tourists and sleeping out on the beach. No, instead, the "calmar ratio" is one of many measures of risk/return, usually employed for commodities and hedge funds over a given time period. (Yeah, not designed to make you calmer at all.)
Mathematically, it measures the average compound annual return over the time period divided by the "drawdown" (the % change between the peak and trough values of the investment vehicle being analyzed) over the same time period. The higher the ratio, the better.
So, if two commodities (let's say, pork bellies and frozen concentrate orange juice) both trade at $4 on Jan 1st, peak at $5 on May 8, and close at a 52-week high of $5 on Dec 31st, they each have a one-year return of 25%. But if pork's lowest price of the year was $3 while OJ's was $2, pork had a drawdown of 40% (3 divided by 5 minus 1) while OJ's was 60%.
In this example, the Calmar Ratio for pork was .625 while OJ's was .417, making it the worse investment on a risk-adjusted basis. Which makes sense since bacon is the superior brunch item to OJ (unless champagne is added...that makes OJ better and bacon soggy).
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Finance: What is an Annualized Return?36 Views
Finance, a la shmoop. What is an annualized return? Alright people, well
when you invest a dollar you hope or even expect to get more than a dollar [ATM machine]
back, at some point. And let's say you invested that dollar in Terminators
Closet -a leading dealer in cybernetic body enhancements. And it went from $1 a
share to a dollar ten six months later. Alright, nice return.
You made 10% in just six months but in most investing discussions ,investment [spreadsheet shown]
returns are discussed in the form of annual returns, not monthly or daily or
biannual numbers, so you need to convert your six-month return into an annualized [angelic glow]
one, and you can do the process here of computing that number that is if you made
10% in six months well then in a year presumably you could notion that you'd
have made 20%. It's not that you would have guaranteedly made 20% it's just [spreadsheet shown]
the math saying that well if you had compounded at that rate then you'd have
made 20%, so what if she made 10% in a month? Well the stock went from a buck a
share Jan 1 to a buck ten a share by Feb 1 .Well if you impute so that you can [calendar shown]
compute that month's gain of 10% would carry a compound rate of a hundred
twenty percent. Right ? You're multiplying 12 months times 10 there, that'd be
annualizing it meaning, that at that rate you are more than doubling your money on [spreadsheet shown]
an annualized return basis. And that's more than enough dough to keep
terminators closet popping out those Wi-Fi enabled contact lenses faster than [woman watches TV]
people can wear them.
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