The Sterling ratio (SR) is a measure of the risk-adjusted return of an investment portfolio.
While multiple definitions of the Sterling ratio exist, it measures return over average drawdown, versus the more commonly used max drawdown.
[citation needed] While the max drawdown looks back over the entire period and takes the worst point along that equity curve, a quick change of the look back allows one to see what the worst peak to valley loss was for each calendar year as well.
The original definition was most likely suggested by Deane Sterling Jones (a company no longer in existence):
[citation needed] To clarify the reason he (Deane Sterling Jones) used 10% in the denominator was to compare any investment with a return stream to a risk-free investment (T-bills).