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- sterling, sterling ratio, sterling ratio formula
What is the Sterling Ratio?
Sterling ratio measures excess return per unit of average drawdown. It is similar to the Calmar ratio, but it uses the average drawdown (often only drawdowns worse than 10%) instead of the single worst drawdown. That makes Sterling less sensitive to one extreme event.
Sterling ratio calculator
Sterling Ratio Calculator
Estimate Sterling from CAGR, risk-free rate, and average drawdown.
Sterling ratio formula
Sterling = (CAGR - risk-free rate) / average drawdown
Step-by-step example
- CAGR: 12%
- Risk-free rate: 4%
- Average drawdown: 8%
- Sterling = (0.12 - 0.04) / 0.08 = 1.00
Higher is better. Sterling is more stable than Calmar because it averages drawdowns.
What is a good Sterling ratio?
A rough benchmark range looks like this:
| Sterling ratio | Interpretation | What it usually means |
|---|---|---|
| Below 0 | Poor | Negative excess return relative to drawdown risk. |
| 0.0 – 1.0 | Suboptimal | Return does not compensate for average drawdown. |
| 1.0 – 2.0 | Good | Solid drawdown-adjusted performance. |
| 2.0 – 3.0 | Very good | Strong drawdown-adjusted performance. |
| Above 3.0 | Excellent | Rare without a very disciplined strategy. |
How we calculate Sterling at Gale Finance
We compute CAGR from daily close-to-close returns and use the average of drawdowns deeper than 10% over the same window. We also subtract the average 3-month Treasury rate to report excess return, keeping Sterling comparable to Sharpe and Sortino.
If you prefer a metric focused on the single worst drawdown, see the Calmar ratio.