Sortino Ratio โ Smart Financial Analysis
Calculate risk-adjusted return using downside deviation only. Sortino = (Portfolio Return - Risk-Free Rate) / Downside Deviation. Better than Sharpe for asymmetric returns.
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A risk-adjusted return metric that only penalizes downside volatility, unlike Sharpe which penalizes all volatility. Sharpe divides by total standard deviation. The standard deviation of only negative returns (below a target). When returns are asymmetric (skewed).
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Why: A risk-adjusted return metric that only penalizes downside volatility, unlike Sharpe which penalizes all volatility. Sortino = (Return - Risk-Free) / Downside Deviation. Created...
How: Enter Portfolio Return (%), Risk-Free Rate (%), Downside Deviation (%) to get instant results. Try the preset examples to see how different scenarios affect the outcome, then adjust to match your situation.
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๐ Quick Examples โ Click to Load
๐ Return, Risk-Free Rate, Downside Deviation
Portfolio return, risk-free rate, and downside deviation.
๐ฉ Risk-Free vs Excess Return
Breakdown of return components.
๐ Sortino Ratios by Asset Class
Compare your portfolio to typical asset classes.
๐ Return vs Downside Risk at Different Levels
Return vs downside risk frontier.
For educational purposes only โ not financial advice. Consult a qualified advisor before making decisions.
๐ก Money Facts
Sortino Ratio analysis is used by millions of people worldwide to make better financial decisions.
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โ S&P Global
The Sortino Ratio improves upon the Sharpe Ratio by only penalizing harmful (downside) volatility, making it the preferred risk metric for modern portfolio analysis. Developed by Frank Sortino, it recognizes that investors don't mind upside volatility - only losses matter. The S&P 500's historical Sortino of ~0.8-1.0 serves as the benchmark for risk-adjusted performance.
Sources: Frank Sortino (1981), CFA Institute, Morningstar, Journal of Portfolio Management.
Key Takeaways
- โข Sortino Ratio = (Portfolio Return - Risk-Free Rate) / Downside Deviation
- โข Downside Deviation = โ(ฮฃ min(0, Ri-T)ยฒ / n) โ only negative returns count
- โข Better than Sharpe because it only penalizes downside volatility
- โข Below 0: bad. 0-1: adequate. 1-2: good. 2-3: very good. Above 3: excellent.
Did You Know?
How Does the Sortino Ratio Work?
The Formula
Sortino = (Portfolio Return - Risk-Free Rate) / Downside Deviation. Excess return divided by downside risk only. A Sortino of 1.0 means 1 unit of excess return per unit of downside risk.
Downside Deviation
Standard deviation of returns below a target (often risk-free rate). Only negative deviations are squared and averaged. Ignores upside volatility entirely.
Sortino vs Sharpe
Sharpe penalizes all volatility. Sortino penalizes only downside. For positively skewed returns (more upside than downside), Sortino gives a higher, more favorable ratio.
Expert Tips
Sortino Ratio Interpretation Guide
| Sortino Range | Interpretation |
|---|---|
| < 0 | Bad โ underperforming risk-free |
| 0 - 1 | Adequate โ S&P 500 typically 0.8-1.0 |
| 1 - 2 | Good โ solid downside risk-adjusted performance |
| 2 - 3 | Very good โ top fund territory |
| > 3 | Excellent โ rare, often unsustainable |
Frequently Asked Questions
What is the Sortino Ratio?
A risk-adjusted return metric that only penalizes downside volatility, unlike Sharpe which penalizes all volatility. Sortino = (Return - Risk-Free) / Downside Deviation. Created by Frank Sortino.
How does Sortino differ from Sharpe?
Sharpe divides by total standard deviation. Sortino divides by downside deviation only. If returns are positively skewed (more upside than downside), Sortino gives a higher (more favorable) ratio.
What is a good Sortino Ratio?
Below 0: bad. 0-1: adequate. 1-2: good. 2-3: very good. Above 3: excellent. The S&P 500's historical Sortino is ~0.8-1.0, higher than its Sharpe of ~0.4-0.5.
What is downside deviation?
The standard deviation of only negative returns (below a target). If you have returns of +5%, -3%, +8%, -7%, +2%, the downside deviation only considers -3% and -7%. Ignores positive volatility.
When should I use Sortino over Sharpe?
When returns are asymmetric (skewed). Strategies with limited downside but unlimited upside (options, venture capital) look better under Sortino. Most modern portfolio analysis prefers Sortino.
Can the Sortino Ratio be negative?
Yes, when portfolio returns are below the risk-free rate. A negative Sortino means you took downside risk for worse-than-riskless returns. The further below zero, the worse.
Key Statistics
Official Data Sources
โ ๏ธ Disclaimer: This calculator is for educational purposes only. Past performance does not guarantee future results. The Sortino ratio assumes you have valid downside deviation data. Not financial advice. Consult a licensed financial advisor for investment decisions.
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