The Sterling ratio is a measure of the risk-adjusted return

Risk adjusted return on capital

Risk adjusted return on capital is a risk-based profitability measurement framework for analysing risk-adjusted financial performance and providing a consistent view of profitability across businesses. The concept was developed by Bankers Trust and principal designer Dan Borge in the late 1970s...

 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):


Typically the time period is over 3 years and only the largest individual drawdowns

Drawdown (economics)

The Drawdown is the measure of the decline from a historical peak in some variable ....

 are included (e.g. 3 or 5).

The "plus 10%" definition is arbitrarily designed to provide a similar value to the Calmar ratio

Calmar Ratio

Calmar ratio is a performance measurement used to evaluate Commodity Trading Advisors and hedge funds. It was created by Terry W. Young and first published in 1991 in the trade journal Futures....

. This version of the Sterling ratio may be adjusted to something more like a Sharpe ratio

Sharpe ratio

The Sharpe ratio or Sharpe index or Sharpe measure or reward-to-variability ratio is a measure of the excess return per unit of deviation in an investment asset or a trading strategy, typically referred to as risk , named after William Forsyth Sharpe...

as follows: