Sterling Ratio Calculator
A Steadier Cousin of the Calmar Ratio
The Calmar ratio has a known quirk: it can swing dramatically based on a single, possibly unrepresentative, worst-case drawdown. The Sterling ratio smooths that out in two ways — by using the average of several maximum drawdowns rather than just the single worst one, and by adding a fixed 10-percentage-point adjustment to the denominator, which softens the impact of drawdowns that happen to be unusually small. The result is a risk-adjusted return figure that's less sensitive to one outlier period.
The Formula
The 10-point addition to the denominator is a widely used industry convention rather than an arbitrary buffer — it keeps the ratio from spiking to an extreme value when the average drawdown input is small.
Where This Matters
- Multi-year fund track records — using an averaged drawdown across several years, instead of one worst episode, produces a more representative risk-adjusted figure for funds with a longer history.
- Smoothing single-event distortion — a strategy that had one unusually deep, one-off drawdown won't dominate the Sterling ratio the way it would the Calmar ratio.
- Cross-manager comparisons — because the 10-point adjustment is applied uniformly, Sterling ratios remain comparable across managers with very different drawdown histories.
| Input | Value |
|---|---|
| Annualized return | 15% |
| Average maximum drawdown | -20% |
| Denominator (20% + 10%) | 30% |
| Sterling Ratio | 0.50 |
15% ÷ 30% = 0.50. Note this is lower than the equivalent Calmar ratio (0.75) for the same inputs, because the 10-point adjustment enlarges the denominator.
How to Use This Calculator
- Enter the annualized return as a percentage.
- Enter the average maximum drawdown as a percentage — typically averaged across several periods rather than a single worst episode.
- Select Calculate to get the Sterling ratio.
Related Calculations
Compare directly with the Calmar Ratio Calculator, or see the Omega Ratio Calculator for a measure built from a full return distribution rather than a single drawdown figure.