What is the Efficiency Score®?

At Capital Market Laboratories® (CMLviz), we have created a standardized reward to risk measurement for backtests called the CML Efficiency Score® (ES).

The ES takes the average trade return from each triggered backtest (the 'reward') and divides it by the maximum drawdown (the risk).

The max drawdown is measured as the largest open-to-trough decline in the value of a backtest for each new opening trade.

Our view is that an CML Efficiency Score® above 0.8 is very good. An CML Efficiency Score® above 1.0 is excellent, demonstrating that the average return is in fact larger than the maximum realized loss.

When the CML Efficiency Score® reads 'max', it means that at no point during any of the triggered trades was there a drawdown below the opening price. This makes the ES calculation the average backtest return divided by zero, which is undefined, or 'max.' It's certainly above 1.0.