The Burke Ratio is a risk-adjusted return metric that uses the sum of squared drawdowns as the risk measure — it penalises both the frequency and severity of drawdowns.
Burke Ratio = (Portfolio Return − Risk-Free Rate) ÷ √(Σ Di²), where Di is each drawdown episode. By squaring drawdowns before summing and taking the square root, the Burke Ratio gives greater weight to severe drawdowns. Unlike the Calmar Ratio (which uses maximum drawdown alone), Burke considers all drawdowns — a fund with many moderate drawdowns will have a worse Burke Ratio than one with one large drawdown. It gives a more complete picture of how consistently a fund avoids capital erosion.
The Burke Ratio asks: 'How good are your returns relative to the cumulative drag of all the drawdowns you've put investors through?' A fund with many small losses (multiple mini-crashes) can have a poor Burke Ratio even if the single worst drawdown was small. Burke penalises both depth and frequency of capital erosion — it's a comprehensive drawdown-based risk measure.
List all drawdown episodes: each fall from peak to a new trough.
Square each drawdown percentage.
Sum all squared drawdowns, take square root.
Burke Ratio = (Portfolio Return − Rf) ÷ √(Σ Di²).
Higher is better — more return per unit of cumulative drawdown risk.