The Sortino Ratio is an advanced performance metric that focuses on downside risk rather than total volatility.
It helps investors evaluate returns while penalizing only harmful deviations below a target return.
Enter your portfolio returns, target return, and downside deviation to calculate the Sortino Ratio instantly.
The Sortino Ratio is a modification of the Sharpe Ratio that considers only downside volatility.
Instead of penalizing both gains and losses, it focuses exclusively on returns below a minimum acceptable return.
Sortino Ratio = (Rp − Rtarget) / Downside Deviation
Where:
Rp = portfolio return
Rtarget = minimum acceptable return
Downside deviation = volatility of negative returns
Metric | Sharpe Ratio | Sortino Ratio |
|---|---|---|
Risk measure | Total volatility | Downside volatility |
Penalizes upside? | Yes | No |
Best for | Normal distributions | Skewed returns |
Many investment strategies generate asymmetric returns.
The Sortino Ratio provides a more realistic view of performance when upside volatility should not be treated as risk.
A Sortino Ratio above 1 is generally considered good, while values above 2 indicate strong downside-adjusted performance.
It depends on the investment strategy. Sortino Ratio is better when downside risk is more relevant than total volatility.
Yes. A negative Sortino Ratio means returns are below the target return.
No. It focuses specifically on downside risk rather than total volatility.
While more refined than the Sharpe Ratio, the Sortino Ratio also has limitations:
Sensitive to target return selection
Requires sufficient downside observations
Less stable for short time series
Calculate Sharpe Ratio and compare results to Sortino Ratio
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