Measuring performance
Sortino ratio
Like the Sharpe ratio, but dividing only by downside volatility rather than all volatility.
How it works
It corrects the Sharpe ratio’s main oddity: being charged for large gains. Only returns below a threshold count towards the risk measure.
For strategies with asymmetric return profiles, Sortino is the fairer comparison.
Formula
Sortino = (portfolio return − target return) ÷ downside deviationRelated terms
More in Measuring performance
- Survivorship bias
- Time-weighted return
- Risk-free rate
- Total return
- Realised profit and loss
- Tracking difference
- Real return
- Tracking error
All 29 Measuring performance terms · The full glossary, 433 terms
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