Concept

Martin Ratio

Martin Ratio, also known as Ulcer Performance Index, return over Ulcer Index, is a Performance, Backtesting & Validation concept. First implementations are in the build queue: the write-up leads, the indicators follow.

What is the Martin ratio?

The Martin ratio, also called the Ulcer Performance Index or return over Ulcer Index, is a risk-adjusted performance measure that divides a strategy's excess return by its Ulcer Index. The Ulcer Index, developed by Peter Martin and Byron McCann in the late 1980s, is the root-mean-square of the percentage drawdowns from the running equity peak, so it grows with both the depth and the duration of drawdowns. The ratio therefore scores growth per unit of sustained drawdown pain.

The measure exists to fix weaknesses on both sides of the usual trade-off. The Sharpe ratio penalizes upside volatility, which most traders do not consider risk, while the Calmar ratio hangs its entire risk estimate on the single worst drawdown, a noisy one-event statistic. By averaging squared drawdown depths across every bar of the test, the Martin ratio uses all of the downside information in the equity curve: a strategy that spends months underwater scores worse than one that dips briefly and recovers, even if their maximum drawdowns match.

Traders care because the denominator matches lived experience: time spent below the high-water mark is what erodes discipline and investor confidence. As a statistically fuller use of the drawdown record, many practitioners consider it one of the better single-number summaries for comparing systems, while acknowledging it remains backward looking like every performance ratio.

How it's calculated

The Martin ratio divides excess return by the root-mean-square drawdown of the equity curve.

D_i = (equity_i - peak_i) / peak_i * 100

Ulcer Index = sqrt( mean( D_i^2 ) )

Martin ratio = (annualized return - risk-free rate) / Ulcer Index

equity_i: equity at observation i

peak_i: highest equity observed up to observation i

D_i: percentage drawdown from the running peak at observation i (zero at new highs)

risk-free rate: reference rate; many implementations omit it and use raw annualized return

The Ulcer Index depends on sampling frequency; daily equity marks are the common convention.

Squaring the drawdowns weights deep declines disproportionately, which is intentional.

How traders use it

System comparison: when two strategies show similar returns, the higher Martin ratio identifies the one whose equity curve spent less time and depth underwater, often a better guide to tradability than Sharpe rankings.
Fund and portfolio screening: the ratio is used to rank funds by growth per unit of drawdown stress, where it frequently reorders lists produced by volatility-based measures, especially for smooth-but-occasionally-gappy return profiles.
Complementary reporting: because it aggregates all drawdowns while Calmar isolates the worst one, practitioners often report both, using disagreement between them as a prompt to inspect the full drawdown record.
Limitations: the ratio is less familiar than Sharpe so comparisons across sources are harder, it is sensitive to the equity sampling frequency, and like all backward-looking ratios it can rank a strategy highly right up until its first genuinely deep drawdown.

Martin ratio vs. related concepts

Ulcer Index: The Ulcer Index is the risk measure itself, the root-mean-square drawdown. The Martin ratio is the performance measure built on it by dividing return by that index.

Calmar Ratio: Calmar divides return by the single maximum drawdown; Martin divides by an average over all drawdown depths and durations. Martin is statistically more stable, Calmar more sensitive to the one worst event.

Sortino Ratio: Sortino penalizes downside deviation of individual period returns below a target; Martin penalizes cumulative drawdown from equity peaks. A slow bleed of small losses hurts Martin more than Sortino.

Related concepts · Return/risk metrics

Sharpe Ratio1 CAGR0 Sortino Ratio0 Calmar Ratio0 Information Ratio0 Extended Risk-adjusted Ratios0 Drawdown Statistics0 SQN0 Significance of Returns0

Concept family

Performance, Backtesting & Validation

30 concepts mapped · 30 in the Library

Martin Ratio FAQ

What is a good Martin ratio?

There is no universal threshold because the value scales with the Ulcer Index's sampling convention, so it is best used to rank strategies measured identically over the same period rather than against an absolute bar.

Why prefer the Martin ratio over the Calmar ratio?

Because it uses every drawdown observation instead of one worst event, it is less noisy and better reflects prolonged shallow drawdowns that Calmar ignores entirely. Calmar remains useful precisely when the single worst case is the binding constraint.

Is the Martin ratio the same as the Ulcer Performance Index?

Yes. Ulcer Performance Index, UPI, and Martin ratio are names for the same construction: excess return divided by the Ulcer Index.

Does the Martin ratio account for drawdown duration?

Implicitly, yes. Every bar spent below the prior peak contributes a squared drawdown term to the Ulcer Index, so long underwater stretches raise the denominator even when the maximum depth is modest.

Build Martin Ratio your way.

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