Martin Ratio
The Martin ratio, also called the ulcer performance index, divides the annual excess return by the ulcer index. The ulcer index counts both the depth and the length of every drawdown, so the ratio is a return per unit of drawdown pain.
Mathematical Formulation
Definition
The numerator is the Sharpe ratio's numerator: P times the mean of the daily return less the daily cash return, with P the run's periods per year. D_t is the compounded drawdown as a positive fraction, and UI is the reported ulcer_index.
Reading it
The value is null when the ulcer index is zero, which happens only on a track that never fell below a previous peak.
Two runs compare fairly only on the same window. A longer window holds more drawdowns, and the ulcer index weights each one by its length.
A higher ratio describes the run window only. It is not evidence that the portfolio will perform better in the future, and no method is validated out of sample.
Where FolioLab reports it
results.<method>.performance.martin_ratio: the annual excess return over the ulcer index, or null.
The value appears on the result page under Performance Ratios, in the PDF and Excel reports, in the compare view and through the MCP explain_metric tool. A run stored before this ratio existed does not carry it.
References
- Martin, P. G., & McCann, B. B. (1989). The Investor's Guide to Fidelity Funds. John Wiley & Sons.
- Martin, P. G. (1987). "The Ulcer Index." Published with the book above; the index the ratio divides by.
Not investment advice. Past performance is not indicative of future results.