--- title: "Strategy Metrics: CAGR, Sharpe, Sortino, Drawdown" description: "CAGR, Sharpe, Sortino, maximum drawdown and expectancy computed on dated NSE closes and made up records, with what each measure hides and how they fit." source_url: "https://www.rupeecase.com/learn/path-19/module-19-2-strategy-metrics" --- [Path 19 2 of 16](/learn/path-19/)Strategy metrics: CAGR, Sharpe, Sortino, drawdown and expectancy[Next 19.3](/learn/path-19/module-19-3-hft-mft-lft) Friday 2 Jan 2026. Nifty closed at 26,328.55. Monday 30 Mar 2026: 22,331.40, 15.2% lower. On 15 Sep 2026, the last close in the files, it stood at 23,118.60, 12.2% under the 2 Jan level, more than eight months on. From 1 Jul 2025 to 1 Jul 2026 it fell 6.0%, from 25,541.80 to 24,005.85. Three numbers describe one stretch: a return, a worst fall and a time under water. None of them tells the story alone, and a strategy record is read the same way. This lesson defines the five measures that matter, [CAGR](/learn/glossary#cagr), Sharpe, Sortino, [drawdown](/learn/glossary#drawdown) and expectancy, computes them on dated NSE closes and on two made up records, and says what each one hides. The closes are price levels without dividends. Nothing here is a strategy, a return claim or a view on where Nifty goes. 3By the end you can 1. Compute CAGR, drawdown and the gain needed to recover from dated NSE closes. 2. Compute Sharpe, Sortino, Calmar and expectancy from a record and say what each one ignores. 3. Explain why one record is one draw, and why a high [Sharpe ratio](/learn/glossary#sharpe-ratio) is not a safety rating. ## The idea, plainly ### What is CAGR? CAGR is the constant yearly rate that takes a start value to an end value. Over exactly one year it is just the return, so the Nifty's fall of 6.0% from 1 Jul 2025 to 1 Jul 2026 is its CAGR for that year, with a minus sign. Over more years the rate compounds. A yearly 10% for two years gives 21%, not twice the rate. CAGR hides the road: two records that end at the same value after three years share a CAGR, however differently they got there. It also depends on the index it is read from. A price index leaves out dividends, and a total return index adds them, so a CAGR from price closes understates what the holder of the shares earned. A number should always say which one it used. CAGR = (end ÷ start) ^ (1 ÷ years) − 1 ### What are volatility and the Sharpe ratio? Volatility is the standard deviation of returns, scaled to a year: the daily figure times the square root of the trading days in a year, about 252. The Sharpe ratio divides the return above a risk free rate by that volatility. It asks how much return came for each unit of bumpiness. The denominator is not a constant of the strategy. The 20 day realised volatility of Nifty ran from 5.2% to 29.5% in the files, so one strategy measured in a quiet window and in a stormy one gives two Sharpe ratios. Volatility also counts a jump up as risk as much as a jump down, and says nothing of a rare large loss. Sharpe = (return − risk free rate) ÷ volatility The Sharpe ratio's denominator moved between 5.2% and 29.5% Twenty day realised volatility of the Nifty 50, annualised, from daily closes. The same strategy measured in the spike and in the lull gives very different ratios. Source: NSE end of day data, computed by RupeeCase. As of 15 Sep 2026. ### What is the Sortino ratio? Sortino keeps the top of the Sharpe ratio and changes the bottom. It divides by the downside deviation, which counts only returns below a chosen target, usually zero. A record whose bumps are mostly upward scores better on Sortino than on Sharpe. It still rests on past returns, and it still misses a loss that has not happened yet. ### What are maximum drawdown and Calmar? A drawdown is the fall from a peak to the next low. The maximum drawdown is the worst of them in the record. In the files it is the fall from 26,328.55 on 2 Jan 2026 to 22,331.40 on 30 Mar, 15.2%. Climbing back needs a bigger gain than the fall, 17.9 percent here, because the base is smaller. A fall of a quarter needs 33.3 percent and a fall of a half needs 100.0 percent. Calmar divides the CAGR by the maximum drawdown. Drawdown is the number a holder lives through and the one that ends strategies, since it says how deep and, with the dates, how long. It is also the worst fall in the sample, not the worst possible one, and a longer sample usually holds a deeper fall. Drawdown = (trough − peak) ÷ peak Gain to recover = 1 ÷ (1 − fall) − 1 A fall of 15.2% from the peak, and still 12.2% under it at the last close Daily close of the Nifty 50, a price index without dividends. The maximum drawdown in the files runs from the peak to the low, and the climb back had not finished by 15 Sep 2026. Source: NSE end of day data, computed by RupeeCase. As of 15 Sep 2026. The deeper the fall, the steeper the climb back Gain needed equals one divided by what is left, less one. The first bar is the Nifty's own fall from 2 Jan to 30 Mar 2026. The others are plain arithmetic. Source: NSE end of day data and RupeeCase arithmetic. As of 30 Mar 2026. ### What is expectancy, and why is win rate not enough? Expectancy is what an average trade earns, in units of the amount risked, written R. It is the win rate times the average win, less the loss rate times the average loss. A record that wins 80% of its trades, earns 0.25 R on a win and loses one R on a loss has an expectancy of 0.00 R a trade, however often it wins. A record that wins 40% and earns 2 R on a win has 0.20 R a trade. The high win rate is the worse record. Profit factor, the gross profit over the gross loss on the same trades, tells it as 1.00 against 1.33. [Buyer or seller](/learn/path-14/module-14-3-option-buyer-vs-seller) shows the same split on option positions. Expectancy = win rate × average win − loss rate × average loss ### How do Sharpe, drawdown, Kelly, sizing and risk of ruin fit together? Each answers a different question about a record, and each has a place where it misleads. | Question | Measure | Where it misleads | | --- | --- | --- | | How fast did it grow? | CAGR | Hides the road | | How bumpy per unit of return? | Sharpe, Sortino | Depends on the window | | How bad did it get, and how long? | Drawdown, Calmar | One episode | | What does a trade earn? | Expectancy | Needs many trades | | How much to risk? | Kelly, risk of ruin | Needs the odds known | The first four describe a past record. The last turns a believed edge into a size, and it is only as good as the odds put into it. [Position sizing and risk of ruin](/learn/path-12/module-12-7-position-sizing-and-risk-of-ruin) works that through, and the Kelly rule is in [Kelly and sizing for option strategies](/learn/path-17/module-17-22-kelly-sizing). 2 terms this section turns on From the module glossary; every term is in the Learn glossary too. Source: Module 19.2, Strategy metrics: CAGR, Sharpe, Sortino, drawdown and expectancy. ## Worked example: two made up records and one model Records A and B are made up. Both have a CAGR of 15% over three years, so Rs 10,00,000 becomes Rs 15,20,875 in each. The risk free rate is assumed at 5%. They differ in how they got there. | Made up record | A | B | | --- | --- | --- | | CAGR | 15% | 15% | | Volatility | 10% | 20% | | Downside deviation | 6% | 14% | | Maximum drawdown | 8% | 30% | | Sharpe | 1.00 | 0.50 | | Sortino | 1.67 | 0.71 | | Calmar | 1.88 | 0.50 | Model, not market data One edge, many paths: the weakest twentieth ended near 0.93 times the start The 5th percentile, median and 95th percentile of the account across 2,000 simulated paths. The metrics of any single path are one draw from a wide band. Inputs: win rate 45%, average win 1.50 times the average loss, 2% of the account risked on each trade, ruin at a 50% loss of the starting account, 250 trades, 2,000 simulated paths, seed 1. Source: RupeeCase model, seeded simulation. As of 17 Oct 2026. Read 2 more paragraphs, 138 words The same CAGR hides a record that was twice as bumpy and fell nearly four times as far. Sharpe is 1.00 against 0.50, and Calmar is 1.88 against 0.50. A holder of B had to sit through a fall of 30%, which is the number that decides whether anyone stays. One record is also one draw. Take a model with a win rate of 45%, an average win of 1.5 times the average loss and 250 trades, risking 2% of the account on each. The expectancy is 0.125 R a trade and Kelly is 8.3%. Over 2,000 simulated paths the median account ends at 1.77 times its start. The weakest twentieth end at 0.93 or less, and the strongest twentieth at 3.22 or more. Every one of those paths has the same edge. ## The common mistake The belief: A high Sharpe ratio means a safe strategy. Sharpe measures bumpiness in the window it was computed on. A seller of far options earns small amounts in nearly every period and meets the tail in a few, as [the lesson on backtest biases](/learn/path-19/module-19-1-backtest-biases) shows with a fair priced model. Computed on a stretch without the tail, the volatility is tiny and the ratio looks superb. The ratio ranks records. The drawdown says what the holder lived through. Before trusting any metric, ask over what window, on what data, from how many trades and after how many versions were tried. SEBI lets only registered advisers, research analysts and empanelled algo providers state past performance, and only as risk and return figures verified by a recognised agency. A screenshot of a ratio is not that. ## Key takeaways * CAGR is the constant yearly rate that compounds to the end value. * Sharpe divides excess return by volatility, and depends on the window. * Sortino counts only downside returns. Drawdown says how deep and how long. * A fall needs a bigger gain to recover, because the base is smaller. * Expectancy, not win rate, says what an average trade earns. * A single record is one draw from a wide band. Watch in the terminal: how bumpy was the ride? A short tutorial on sample data. **Before you trade.** Derivatives trading carries a high risk of loss. SEBI's study "Profitability of Individual Traders in the Equity Derivatives Segment (FY25 to FY26)" (August 2026) found that 87.7% of individual traders in equity F&O made net losses in FY26, with aggregate net losses of Rs 91,685 crore. [Read the SEBI study](https://www.sebi.gov.in/reports-and-statistics/research/aug-2026/study-profitability-of-individual-traders-in-the-equity-derivatives-segment-fy25-fy26-_103835.html) What does Strategy metrics: CAGR, Sharpe, Sortino, drawdown and expectancy cover?One number never describes a record. Five measures, each with a job and a blind spot, on dated NSE closes. It works through The idea, plainly, Worked example: two made up records and one model, The common mistake, Key takeaways. It is module 19.2 of Path 19, Algo, HFT and Backtesting, about 9 minutes of reading, free. TTry it ## Risk of ruin, on the same example. Win rate, payoff and size, simulated to the chance of losing the account. Dated NSE end of day data, nothing live, no orders. **Risk of ruin**. [Open the risk of ruin](/learn/tools/risk-of-ruin?preset=high-win-small) AF&O on RupeeCase ## Hedging only, in development F&O at RupeeCase will do one job: protect a portfolio you already own, by a rule published before it runs. No speculation, no naked option selling, no leveraged bets. It is not available yet. [How hedging will work](/hedging)[Sign up for RupeeCase](https://invest.rupeecase.com/signup) [No hedgeFalls with the marketWith a putA floor, for a premiumIllustration with made up numbers, not a product and not a recommendation.](/hedging) QQuick check ## 10 questions, 7 to pass. Each attempt draws 10 of the 15 questions in this module's bank, and a retake draws a fresh set. A pass gives this module's Certificate of Completion. Your result stays on this device and counts towards the Path 19 certificate. 7 of 10 correct passes module 19.2 Every answer is explained when you check; a retake is always free. Source: RupeeCase Learn quiz rules (70% to pass). Passed ### Certificate ID Download PNGPrint or save as PDF[Check the ID](/learn/certificates/verify) Self paced and unproctored. A record of completing free education by RupeeCase; not a NISM certificate and not endorsed by NISM, NSE, BSE or SEBI. It qualifies no one to deal, advise or publish research. CCheck yourself ## Path 19 so far. Your quick check results on this device, stop by stop. Stop 2 of 16 on Path 19 Algo, HFT and Backtesting: every live stop, this module ringed. Source: RupeeCase Learn, Path 19. 1. [19.1What a backtest is, and five biases that ruin itNot yet](/learn/path-19/module-19-1-backtest-biases) 2. [19.2Strategy metrics: CAGR, Sharpe, Sortino, drawdown and expectancyNot yet](/learn/path-19/module-19-2-strategy-metrics#quiz) 3. [19.3HFT, MFT and LFT comparedNot yet](/learn/path-19/module-19-3-hft-mft-lft) 4. [19.4Colocation, latency and fairness: NSE's historyNot yet](/learn/path-19/module-19-4-colocation-and-latency) 5. [19.5Building a compliant retail algoNot yet](/learn/path-19/module-19-5-building-a-compliant-algo) 6. [19.6Backtesting options on Indian dataNot yet](/learn/path-19/module-19-6-backtesting-options) 7. [19.7Walk forward and out of sample testingNot yet](/learn/path-19/module-19-7-walk-forward-testing) 8. [19.8Monte Carlo and bootstrap of trade resultsNot yet](/learn/path-19/module-19-8-monte-carlo-and-bootstrap) 9. [19.9Microstructure models: spreads, informed trading and price impactNot yet](/learn/path-19/module-19-9-microstructure-models) 10. [19.10Market making: inventory and quotingNot yet](/learn/path-19/module-19-10-market-making) 11. [19.11Optimal execution and market impactNot yet](/learn/path-19/module-19-11-optimal-execution) 12. [19.12HFT economics and the latency raceNot yet](/learn/path-19/module-19-12-hft-economics) 13. [19.13Backtest overfitting: deflated Sharpe, PBO and multiple testingNot yet](/learn/path-19/module-19-13-backtest-overfitting) 14. [19.14Financial machine learning done carefullyNot yet](/learn/path-19/module-19-14-financial-machine-learning) 15. [19.15Expiry day market integrity: a SEBI interim order, FutEq limits and surveillanceNot yet](/learn/path-19/module-19-15-expiry-day-market-integrity) 16. [19.16Capstone: a research note on an Indian derivatives questionNot yet](/learn/path-19/module-19-16-capstone-research-note) 17. [TPath test, 30 questionsNot yet](/learn/path-19/module-19-16-capstone-research-note#pathTestSection) Path 19 in reading time: 172 minutes over 16 modules Minutes of reading per module, this one in amber. Source: RupeeCase Learn, Path 19. Explore next ## Put the module to work. * [Free module 12.8Red flags in F&O: tip groups, too good claims and registration checks7 min read](/learn/path-12/module-12-8-fo-red-flags) * [ToolOption payoff builderLegs on a dated Nifty chain, breakevens and charges](/learn/tools/payoff-builder) * [Free module 12.7Position sizing and risk of ruin for F&O beginners8 min read](/learn/path-12/module-12-7-position-sizing-and-risk-of-ruin) * [Free module 14.3Buyer or seller: payoffs, margin, win rate and expectancy9 min read](/learn/path-14/module-14-3-option-buyer-vs-seller) * [Free module 19.1What a backtest is, and five biases that ruin it9 min read](/learn/path-19/module-19-1-backtest-biases) * [Free module 17.22Kelly and sizing for option strategies10 min read](/learn/path-17/module-17-22-kelly-sizing) Community ## Join my WhatsApp group. Scan the code, fillFill one short form, and join my WhatsApp group. Slides, sources, factsheets and the rebalance logs live there, and members join a daily Google Meet with me. New to RupeeCase? [Getting started](/getting-started) [See the terminal](/terminal) [Sign up for RupeeCase](https://invest.rupeecase.com/signup) [Join the WhatsApp group](https://forms.gle/C6HMtM1Z2GfeocQV7) [One form, one group](https://forms.gle/C6HMtM1Z2GfeocQV7)Scan with your phone camera SSources ## Go to the source. 7 sources, SEBI the most cited The publisher of each source listed below. Source: Module 19.2 source list. 1. [NSE Indices, Nifty 50 index (price index, total return index and methodology)](https://www.niftyindices.com/indices/equity/broad-based-indices/nifty-50) NSE 2. [SEBI, Profitability of Individual Traders in the Equity Derivatives Segment, FY25 to FY26 (August 2026)](https://www.sebi.gov.in/reports-and-statistics/research/aug-2026/study-profitability-of-individual-traders-in-the-equity-derivatives-segment-fy25-fy26-_103835.html) SEBI 3. [SEBI, circular of 3 August 2026, enrolment with PaRRVA for verified past performance](https://www.sebi.gov.in/legal/circulars/aug-2026/extension-of-timeline-for-enrolment-with-parrva-as-specified-in-sebi-circular-no-ho-38-14-4-2026-mirsd-pod-i-10557-2026-dated-april-29-2026_103314.html) SEBI 4. [SEBI Investor, Understanding derivatives](https://investor.sebi.gov.in/understanding_derivatives.html) SEBI 5. [Sharpe, W. F., The Sharpe Ratio, Journal of Portfolio Management, 1994](https://doi.org/10.3905/jpm.1994.409501) Paper 6. [Kelly, J. L., A New Interpretation of Information Rate, Bell System Technical Journal, 1956](https://doi.org/10.1002/j.1538-7305.1956.tb03809.x) Paper 7. Chan, E. P., Algorithmic Trading, Wiley, 2013 (performance measurement and risk management) Book GTerms ## 5 terms from this module. [CAGR](/learn/glossary#cagr)Compound annual growth rate: the constant yearly rate that takes a start value to an end value. Over one year it equals the return. [Sharpe ratio](/learn/glossary#sharpe-ratio)The return above a risk free rate divided by the volatility of returns, annualised. [Sortino ratio](/learn/glossary#sortino-ratio)Like the Sharpe ratio, but divides by the downside deviation, which counts only returns below a target. [Maximum drawdown](/learn/glossary#drawdown)The worst fall from a peak to the next low in a record, as a share of the peak. [Expectancy](/learn/glossary#expectancy-per-position)What an average trade earns, in units of the amount risked: win rate times average win, less loss rate times average loss. [All 230 terms in the glossary](/learn/glossary) [Question people askSharpe, max drawdown, Kelly, position sizing and risk of ruin: how do they fit?A short answer with a dated chart](/learn/questions/sharpe-drawdown-kelly-sizing)[Related module12.7 Position sizing and risk of ruin for F&O beginners8 min, Beginner](/learn/path-12/module-12-7-position-sizing-and-risk-of-ruin)[Related module14.3 Buyer or seller: payoffs, margin, win rate and expectancy9 min, Beginner](/learn/path-14/module-14-3-option-buyer-vs-seller)[Pillar guideDerivatives and Quant115 modules across paths 12 to 19](/learn/derivatives) Education only, not investment advice, a research report or a recommendation to buy, sell or hold any security. RupeeCase (QC Alpha Technologies Pvt Ltd) is not registered with SEBI as an investment adviser or research analyst. Contracts and prices shown are for illustration only, come from NSE end of day files at least 30 days old, and are not recommendatory. Derivatives trading carries a high risk of loss.