# Sterling ratio

The Sterling ratio (SR) is a measure of the risk-adjusted return of an investment portfolio.

Multiple definitions of the Sterling ratio exist. The original definition was most likely suggested by Deane Sterling Jones (a company no longer in existence):

$SR=\frac{Annual\ Portfolio\ Return}{Average\ Largest\ Drawdown + 10%}$

Typically the time period is over 3 years and only the largest individual drawdowns are included (e.g. 3 or 5).

The "plus 10%" definition is arbitrarily designed to provide a similar value to the Calmar ratio. This version of the Sterling ratio may be adjusted to something more like a Sharpe ratio as follows:

$SR=\frac{Annual\ Portfolio\ Return - Annual\ Risk\operatorname{-}Free\ Rate}{Average\ Largest\ Drawdown}$