Sortino Ratio Calculator
Measure return per unit of downside risk with the Sortino ratio — the Sharpe ratio refined to penalise only harmful, below-target volatility.
How it works
Sortino ratio = (portfolio return − risk-free rate) ÷ downside deviation
The Sortino ratio is a refinement of the Sharpe ratio that divides excess return by downside deviation — the volatility of only the losing periods — instead of total volatility. Its logic is that upside swings are what investors want, so penalising them, as the Sharpe ratio does, unfairly dings funds that are simply volatile to the good side. A higher Sortino means more reward for each unit of genuinely harmful risk, and it is especially useful for strategies with lopsided, non-symmetric returns.
Worked example
A portfolio returns 12% with a 2% risk-free rate and 8% downside deviation. Sortino = (12 − 2) ÷ 8 = 1.25. Because only the harmful volatility is in the denominator, this reads higher than the Sharpe ratio would for the same fund.
Sources: Sortino ratio (Wikipedia)
Frequently asked questions
How is the Sortino ratio different from the Sharpe ratio?
Sharpe divides excess return by total volatility, treating up and down swings alike. Sortino divides by downside deviation only, so it does not penalise a fund for large gains — arguably a fairer view of risk-adjusted performance.
What is a good Sortino ratio?
As a rough guide, below 1 is subpar, 1–2 is good, 2–3 is very good and above 3 is excellent. Compare ratios computed over the same period and against similar strategies rather than in isolation.
What is downside deviation?
It is the standard deviation of returns that fall below a target (often the risk-free rate or zero), ignoring the periods that beat it. It captures the volatility investors actually dislike — the risk of losing money.
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Educational estimate, not investment advice. Markets involve risk of loss.