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RoMaD: Return over Max Drawdown

intermediate6 min read

How much return you earn for the worst pain endured — a brutally practical efficiency gauge.

RoMaD (Return over Maximum DrawdownThe worst peak-to-trough fall in a portfolio.), closely related to the Calmar ratioAnnual return divided by maximum drawdown., is one of the most practical risk-adjusted measures: it divides your annual return (CAGRCompound Annual Growth Rate — the smoothed yearly return.) by your worst drawdownThe worst peak-to-trough fall in a portfolio.. It directly answers “how much return did I earn for the worst pain I had to endure?”

RoMaD resonates with real traders because it measures risk by the thing that actually makes people quit — the **worst drawdownThe worst peak-to-trough fall in a portfolio.**, not abstract volatilityThe size of price swings — not their direction.. SharpeReturn per unit of risk — the standard risk-adjusted measure. and SortinoReturn per unit of downside risk only. use standard deviationA measure of how spread out returns are., which is statistically tidy but emotionally meaningless; what truly breaks an investor is the gut-wrenching peak-to-trough fall. RoMaD pits your reward (CAGRCompound Annual Growth Rate — the smoothed yearly return.) directly against that pain. A RoMaD of 1 means you earned, annually, about as much as your worst drop — modest; a RoMaD of 2–3+ means strong return for the suffering endured. It’s brutally honest about efficiency: two strategies with the same 20% CAGRCompound Annual Growth Rate — the smoothed yearly return. are not equal if one had a 15% max drawdownThe worst peak-to-trough fall in a portfolio. (RoMaD ≈ 1.3) and the other a 50% drawdown (RoMaD ≈ 0.4). RoMaD rewards the smooth, survivable ride and exposes the “high return” that only came with unbearable pain.
ExampleStrategy A: 20% CAGRCompound Annual Growth Rate — the smoothed yearly return., 15% max drawdownThe worst peak-to-trough fall in a portfolio. → RoMaD ≈ 1.33. Strategy B: 20% CAGRCompound Annual Growth Rate — the smoothed yearly return., 50% max drawdownThe worst peak-to-trough fall in a portfolio. → RoMaD ≈ 0.40. Identical returns, but A earns far more per unit of worst-case pain — and is the one you could actually hold through. RoMaD instantly flags B as the inferior, harder-to-survive engine.
Key takeawayRoMaD = CAGRCompound Annual Growth Rate — the smoothed yearly return. ÷ maximum drawdownThe worst peak-to-trough fall in a portfolio. (≈ Calmar) — return earned per unit of worst-case pain. It measures risk by the drawdownThe worst peak-to-trough fall in a portfolio. that actually makes people quit, not abstract volatilityThe size of price swings — not their direction.. Higher is better (2–3+ strong); it exposes “high returns” that only came with unbearable drawdowns.
FAQs
RoMaD or Sharpe — which is better?

They capture different risks: Sharpe/Sortino use volatility (smoothness of the ride), RoMaD uses the worst drawdown (survivability of the worst moment). RoMaD is often more *intuitive and practical* for real investors because drawdown is what people actually experience and flee from. Look at both — a strong strategy should score well on volatility *and* drawdown-based measures.

Related glossary terms
RoMaD / Calmar RatioMaximum DrawdownCAGRSharpe Ratio