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Sterling Ratio

Return/risk ratio. Return is defined as the compound annualized rate of return over the last 3 years. Risk is defined as the average yearly maximum drawdown over the last 3 years less an arbitrary 10%.

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%.


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