Reading Risk Metrics: CAGR, Drawdown, Volatility, Sharpe, and Sortino Together

Every strategy page and simulator result on this site reports the same five core numbers: CAGR, Max Drawdown, Volatility, Sharpe Ratio, and Sortino Ratio. Each answers a different question, and reading them together resists the biggest temptation in investing: ranking strategies purely by CAGR, which ignores how much risk was taken to earn it.

What each number tells you

CAGR answers how much did this grow, on average, per year? It is the headline figure, but it says nothing about the ride. Max Drawdown answers what is the worst decline I would have lived through? — arguably the most emotionally relevant number, since deep drawdowns are what cause investors to sell at the bottom. Volatility answers how much did returns bounce around, in both directions? — a broader measure of uncertainty than drawdown alone.

The efficiency scores

Sharpe and Sortino both compress return and risk into a single efficiency score — return earned per unit of risk — but define risk differently. Sharpe penalizes all volatility, including big up months; Sortino penalizes only downside volatility, which is closer to how investors actually experience risk. When a strategy's Sortino sits well above its Sharpe, most of its volatility has historically come from the upside — not something to fear.

A reading order that works

Start with Max Drawdown and Volatility to ask: could I have lived through this emotionally? A strategy you abandon in a panic will underperform its own backtest, so fit matters as much as the numbers. Then look at CAGR to see the growth you were compensated with for bearing that risk. Finally, use Sharpe and Sortino to judge whether a different strategy delivered a similar CAGR with a meaningfully smoother path.

Why no single metric is enough

Two strategies can share an identical CAGR while one glided and the other suffered brutal multi-year declines and slow recoveries. One can show lower volatility yet a deeper worst-case drawdown. The metrics are complements, not substitutes — which is exactly why this site shows all five side by side, and why the compare tool lets you line up two to five strategies at once. For the deeper why behind diversification's effect on these numbers, see our guides on diversification and correlation.