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Calmar with memory. Punishes strategies that took a series of medium drawdowns.
Sterling ratio is annualized return divided by the average of the worst N drawdowns (typically the worst 3 over a 36-month window), often minus a fixed 10% adjustment. A more drawdown-sensitive cousin of Calmar — punishes a series of medium drawdowns more harshly than the single-worst Calmar denominator.
Sterling = Annual Return / (mean of N worst DDs − 10%)Sterling = Rannual / (mean(N worst |DD|i) − 10%)Find your worst 3 drawdowns, average their absolute values, optionally subtract 10%. Use that as the denominator. The denominator is always larger than (or equal to) just the single max drawdown, so Sterling is always less than or equal to Calmar.
Calmar only cares about your worst day. Sterling asks "have you had multiple bad days?" A strategy with a single 30% drawdown and many 5% drawdowns has Calmar 0.5 (good) but Sterling closer to 0.3 (worse). For investors who hate repeated stress, Sterling is the right ratio.
Annualized return: 11%. Worst 3 drawdowns in the last 36 months: −18%, −14%, −9%.
Mean of |DDs| = (18 + 14 + 9) / 3 = 13.67%
Sterling = 11% / (13.67% − 10%) = 11% / 3.67% = 3.0
Sterling can be very high when drawdowns are modest because the −10% adjustment shrinks the denominator. Some calculations skip the −10%; Foliolytic shows both.
With the −10% adjustment, Sterling above 1.0 is strong; above 2.0 is exceptional. Without the adjustment, Sterling typically tracks slightly below Calmar.
Calmar uses just the worst single drawdown. Sterling uses the average of the worst N (typically 3). Sterling punishes serial drawdowns more harshly.
Original Deane Sterling Jones formulation subtracted 10% from the average drawdown as a baseline for what was considered a "normal" drawdown. Some modern definitions skip this.
With the −10% adjustment, above 1.0 is strong. Without, above 0.5 is strong (roughly the same level as Calmar).
Yes — Foliolytic reports Sterling both with and without the −10% adjustment so you can interpret either convention.
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