What does the MAR ratio measure?

The MAR ratio, which stands for Maximum Drawdown to Annualized Return ratio, is a measure that evaluates the performance of an investment strategy by comparing the net profit relative to the maximum drawdown it has experienced. This ratio provides insight into the return potential of an investment while accounting for the risk associated with significant declines in value. A higher MAR ratio indicates that an investor is achieving greater returns for the level of risk taken, which is essential for determining the effectiveness and sustainability of a trading strategy.

In this context, understanding the relationship between net profit and maximum drawdown is crucial for assessing risk-adjusted performance. It enables investors to identify strategies that not only yield high returns but also maintain a manageable level of risk, which is essential for long-term investing success.