What Is Martin ratio?

The Martin ratio, also known as the Ulcer Performance Index (UPI) or Return-to-Ulcer ratio, is a risk-adjusted return measure that divides excess return by the Ulcer Index rather than by standard deviation (as the Sharpe ratio does) or downside deviation (as the Sortino ratio does). It was introduced by Peter Martin alongside the Ulcer Index to provide a reward-to-pain metric that reflects how investors actually experience losses — not as abstract variance but as sustained drawdown suffering.

The formula is straightforward: Martin Ratio = (Portfolio Return − Risk-Free Rate) / Ulcer Index. Because the Ulcer Index captures both the magnitude and the persistence of every drawdown episode, the Martin ratio penalises strategies that spend long periods underwater more heavily than those that recover quickly. This makes it especially valuable for comparing managed-futures (CTA) strategies, trend-following systems, and any approach where capital preservation is paramount.

Compared to the Calmar ratio, which relies on a single worst-case maximum drawdown, the Martin ratio uses the full distribution of drawdown events. This means it is far less sample-dependent and more stable across rolling windows. On short track records — where a lucky avoidance of one crisis can inflate the Calmar ratio — the Martin ratio provides a more honest assessment. It is also more granular than the Sortino ratio because it weights sustained drawdowns more heavily than isolated bad months that quickly reverse.

Formula

Martin Ratio = (R_p - R_f) / Ulcer Index

where R_p is the portfolio return, R_f is the risk-free rate, and the Ulcer Index measures drawdown pain.

Pros

  • Integrates all drawdown episodes, not just the single worst one

  • More stable than Calmar ratio on short histories

  • Penalises sustained time underwater, matching investor psychology

  • Easy to compute once the Ulcer Index is available

Cons

  • Less widely adopted in industry reporting than Sharpe or Sortino

  • Not included by default in many backtest frameworks, requiring custom implementation

  • Shares the Ulcer Index’s sensitivity to look-back window length

Peter Martin’s original description of UPI.

Ulcer Performance Index on Wikipedia.

Allocate Smartly — UPI portfolio optimisation.

See also