Definition of Sterling Ratio

Excerpts from Building Wealth with Managed Futures

The Sterling Ratio "…is a risk-adjusted return measurement calculated by dividing the Annualized Compound ROR by the Average Yearly Maximum Drawdown less an arbitrary 10%. The Sterling Ratio is normally calculated using the last 36 months of data."
page 55

Detailed information on this and other statistical performance measurements used by the managed futures industry to evaluate CTA performance can be found in Building Wealth with Managed Futures an easy to understand guide to investing in managed futures."      To Purchase

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Sterling Ratio = Annualized Compound ROR / (the Average Yearly Maximum Drawdown - 10%)*

* We use the absolute value, so this becomes a positive number

The Average Yearly Maximum Drawdown is the sum of ((the worst drawdown for 1st 12 months) + (the worst drawdown for the 2nd 12 months) + (the worst drawdown for the 3rd 12 months)) / 3