CFA Level I
Alternative Investments
Formula Reference Sheet
Alternative Investment Performance Ratios
Ratio Comparison — All Three
| Ratio | Formula | Denominator Used | Notes |
|---|---|---|---|
| Sharpe Ratio | (Rp − Rf) / σp | Total standard deviation | Standard risk-adjusted return |
| Sortino Ratio | (Rp − Target Return) / Downside Deviation | Downside deviation only | Penalizes only negative volatility |
| Calmar Ratio | Avg Annual Return / Max Drawdown | Max Drawdown | Typically uses prior 3 years |
| MAR Ratio | Avg Compounded Return (full history) / Max Drawdown | Max Drawdown | Uses full return history |
Calmar Ratio
Avg Annual Rate of Return
Max Drawdown
Typically calculated using the prior 3 years of returns / max drawdown
MAR Ratio
Avg Compounded Return (full history)
Max Drawdown
Like Calmar but uses the full return history rather than 3 years
Sortino Ratio
Portfolio Return − Target Return
Downside Deviation
Unlike Sharpe, uses downside deviation — only penalizes negative volatility below the target return
Futures Curve Structure
Contango
F₀ > S₀
Futures price > Spot price
Normal for storable commodities with high carry costs.
Roll return is negative (rolling from higher to lower futures).
Normal for storable commodities with high carry costs.
Roll return is negative (rolling from higher to lower futures).
Backwardation
F₀ < S₀
Futures price < Spot price
Common when there is a convenience yield or supply shortage.
Roll return is positive (rolling from lower to higher spot).
Common when there is a convenience yield or supply shortage.
Roll return is positive (rolling from lower to higher spot).
Total Futures Return = Spot Return + Roll Return + Collateral Return
Roll return is negative in contango, positive in backwardation.
Roll return is negative in contango, positive in backwardation.