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Sortino Ratio

Return/risk ratio. The concept and formula as in Sharpe ratio. The only difference is that it is calculated using standard deviation of negative returns only as s (returns below a minimum acceptable threshold).

Sortino ratio is a measure of risk–adjusted performance that indicates the level of excess return per unit of downside risk. It differs from the Sharpe ratio in that it recognizes investors´ preference for upside (´good´) over downside (´bad´) volatility and uses a measure of ´bad´ volatility as provided by semi–deviation – the annualized standard deviation of the returns that fall below a target return, say the risk free rate.

 


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