This ratio is also a comparison of historical reward and risk and was developed by Deane Sterling Jones. The Sterling Ratio is equal to the average annual rate of return for the past three calendar years divided by the average of the maximum annual drawdown in each of those three years plus 10%.
Formula: Compound Annual ROR for the past three years / (Average Annual Maximum Drawdown + 10%)
- Average Annual Return definition
- Sterling Ratio definition
- Equity Market Neutral definition
- Short Selling definition
- Convertible Arbitrage definition