Sortino Ratio

View Financial Glossary Index

Definition

The Sortino Ratio is named after Frank Sortino, who is widely recognized for his use of downside risk.

The Sortino ratio is very similar to the Sharpe ratio in that it is trying to capture the risk of an investment over a certain period. However, the Sortino Ratio does this by capturing the "downside" risk, by ignoring the upside volatility. The theory being investors should only be concerned with harmful (negative) volatility.

Formula

Sortino Ratio = Average Returns / Downside Risk

Therefore, a larger Sortino Ratio would indicate a less risky investment.

Average returns is calculated by taking the monthly total returns (daily) and averaging them over the lookback period.

Downside risk is calculated by taking the standard deviation of negative monthly price returns (daily) over the lookback period.

Are you an investing professional?

Click here to request a live demo of YCharts Professional, our premium suite of tools and data.
Learn more about our professional products. Call (866) 965-7552 or email sales@ycharts.com

Advertisement

{{root.upsell.info.feature_headline}}.

{{root.upsell.info.feature_description}}

Please note that this feature is only available as an add-on to YCharts subscriptions.


Please note that this feature requires full activation of your account and is not permitted during the free trial period.

Start My Free Trial {{root.upsell.info.call_to_action}} No credit card required.

Already a subscriber? Sign in.