Sharpe Ratio Explained — and Sortino & Calmar

The Sharpe ratio answers one question: how much return did you get for the risk you took? It's the single most useful number for comparing strategies.

What is the Sharpe ratio?

Roughly, it's your average return divided by how much your returns bounce around (volatility), annualized. Higher is better because you're earning more per unit of risk.

• Below 1 — mediocre risk-adjusted return.
• 1–2 — good.
• Above 2 — excellent (and rare in the real world over long periods).

Sortino: only punish the downside

Sharpe treats upside and downside swings the same, which is unfair — you don't mind big up days. Sortino only counts downside volatility, so strategies with sharp gains but controlled losses score better.

Calmar: reward vs pain

Calmar divides annual return by the worst drawdown. It directly answers "how much did I earn for the worst loss I had to stomach?" — great for comparing how comfortable a strategy is to actually hold.

See them instantly

HeroQuant shows Sharpe, Sortino, Calmar, volatility and win rate for every backtest — no code, on real data.