How this number is made
The Sortino ratio is the return above a target, divided by the volatility of the losing side only. Unlike the Sharpe ratio, a sharp gain does not count as risk. You type the downside deviation. This page does not build it from a list of months.
- Use the same period for the return and the downside deviation.
- The target is often a Treasury yield, or zero if you only care about losses.
Formula
Sortino = (portfolio return − target) ÷ downside deviation.
Worked example
With the figures already in the form, sortino ratio is 1.00.
Questions
How is this different from Sharpe?
Sharpe divides by all volatility. Sortino divides only by the downside. A portfolio that jumps up looks worse on Sharpe than on Sortino.
Where does downside deviation come from?
From the returns below the target. This page will not invent that number from a single year.