Performance & risk
Sortino Ratio
Excess return per unit of downside deviation.
What Sortino Ratio Means
The Sortino ratio counts only returns below a minimum acceptable return in its risk measure, so large positive returns are not penalized.
Sortino Ratio Formula
Sortino ratio = (Rₚ − MAR) ÷ downside deviation
How to Read the Result
A portfolio returns 10%, uses a 3% target, and has 8% downside deviation. Its Sortino ratio is 0.875.
Limitations
- The selected target can change the result.
- Short samples may contain few downside observations.
- It still compresses loss shape and timing into one value.
Common Questions
Why can Sortino exceed Sharpe?
Its denominator can be smaller because it ignores returns above the selected target.
Measuring return and risk
- Maximum drawdownDefinition
- Treynor ratioDefinition
- Information ratioDefinition
- Profit factorDefinition
- Win rateDefinition