Burke ratio: a drawdown-adjusted return ratio using the square root of summed squared drawdowns
The Burke ratio is one of several drawdown-adjusted return measures alongside the Calmar ratio, the Sterling ratio, and the pain ratio. Where Calmar divides return by maximum drawdown only, Burke uses the square root of the sum of squared drawdowns—capturing every drawdown in the period, with deeper drawdowns weighted disproportionately.
What the Burke ratio is
The Burke ratio is defined as annualised return divided by the square root of the sum of squared drawdowns over the measurement period. Each drawdown is measured as a percentage from the prior peak; the squared sum amplifies the contribution of deep drawdowns relative to shallow ones.
Where the Calmar ratio reduces an entire drawdown history to its single worst observation, the Burke ratio reflects the full distribution of drawdowns. A strategy that experiences many small drawdowns will have a different Burke ratio from one that experiences a single deep drawdown of similar magnitude—even if their Calmar ratios are identical.
How it works
The squared-sum construction is the key methodological choice. By summing squared drawdowns rather than absolute drawdowns, the ratio is more punitive of deep drawdowns and less punitive of frequent shallow ones. A 10% drawdown contributes 100 to the sum of squares; ten 3% drawdowns contribute 90 in total. The Burke ratio prefers the strategy with frequent shallow drawdowns despite the larger raw count of negative episodes.
The square root in the denominator returns the metric to the same units as return, allowing direct comparison with other return ratios. A Burke ratio of 1.5 means annualised return is 1.5 times the root-sum-square of drawdowns over the period.
What the evidence shows
Burke (1994) introduced the ratio as a refinement of Calmar that addresses the latter's reliance on a single worst-drawdown observation. In comparison studies of drawdown-based ratios (Eling & Schuhmacher, 2007), Burke produces rankings that correlate strongly with Calmar and Sterling but differ at the margin for strategies with distinctive drawdown profiles. The ratio is particularly useful for evaluating systematic strategies whose drawdown distributions are well-defined.
The metric has not displaced Calmar in popular practitioner use, partly because Calmar's single-event simplicity is more intuitive. Burke is more common in the alternative-investments and CTA performance-evaluation literature than in long-only equity reporting.
Limitations and trade-offs
Like all drawdown-based ratios, Burke is sensitive to the measurement period. A two-year sample produces a different Burke ratio from a five-year sample on the same strategy because the drawdown histories differ. Comparison across managers therefore requires aligning the measurement window.
The Burke ratio also has no direct probabilistic interpretation. Unlike Sharpe (which links to a t-statistic) or VaR (which links to a quantile), Burke is a descriptive ratio that cannot be inverted into a probability statement. It complements rather than replaces the standard return / volatility metrics.
Burke ratio in pfolio
Burke ratio is not currently displayed in pfolio Insights. The platform's drawdown analytics—maximum drawdown, time underwater, Calmar ratio—are visible, and the Burke construction can be computed externally from the drawdown series exposed in the platform.
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