Sortino Ratio Calculator
Measure risk-adjusted return using downside risk only: Sortino = (asset return − risk-free rate) ÷ downside deviation, which ignores upside volatility.
Input Data
Results
At a glance:The Sortino ratio is like the Sharpe ratio but uses downside risk only. Sortino = (asset return − risk-free rate) ÷ downside deviation, where downside deviation is the volatility of returns below the target. A higher Sortino is better; it does not penalise upside volatility.
Formula
Sortino ratio = (asset return − risk-free rate) ÷ downside deviation.
$$$Sortino = \\dfrac{R_a - R_f}{\\sigma_d}$$$$$$\\sigma_d$ ()$$$$$\\dfrac{12\\% - 2\\%}{6\\%}\\approx1.67$$$How to Use
- Enter the asset average return.
- Enter the risk-free rate and the downside deviation (decimal).
- Read the Sortino ratio.
FAQ
What is the difference between the Sortino and Sharpe ratios?
The Sharpe ratio uses total volatility (standard deviation), penalising both upside and downside swings. The Sortino ratio uses only downside deviation, so it is more lenient on investments that 'gain a lot but swing widely', closer to the loss risk investors actually care about.
How is the downside deviation calculated?
Replace every return in the historical series that is above the target (usually 0) with 0, then take the standard deviation of the whole series. Only the loss-side swings are kept.
What does a negative ratio mean?
It means the asset's average return is below the risk-free rate — you took risk yet underperformed the safest choice, a sign of weak performance.
How exactly is downside deviation computed, and how does it differ from ordinary standard deviation?
The core difference: ordinary standard deviation counts every deviation from the mean (up or down) as risk, while downside deviation counts only deviations below a target return, ignoring upside. Steps: (1) set a target return (MAR, minimum acceptable return), usually 0 or the risk-free rate; (2) for each historical return, if it is at or above target, its deviation is 0, otherwise it is the shortfall; (3) square, average and square-root those loss-only deviations. In short, downside deviation is 'set all returns above target to the target, then take the standard deviation' — it reflects only the downside. Why? Because upside swings are not risk to investors; ordinary SD penalises big upswings too, which is unfair to a strategy that 'often surges, rarely dips'. Downside deviation reveals the true loss risk. This calculator takes the already-computed downside deviation (decimal, e.g. 0.05 = 5%); you must derive it from the return series and target first.
When should I use Sortino instead of Sharpe?
Both measure risk-adjusted return with the same numerator; they differ only in the risk definition. Use Sortino when: (1) returns are asymmetric (skewed) — e.g. a strategy with big gains and small dips looks 'high risk' under Sharpe (total SD) but is actually low downside risk under Sortino; (2) you care only about losses — most investors fear losses, not extra gains; (3) evaluating hedge funds or option strategies with non-linear payoffs, where Sortino is the industry preference. Use Sharpe when returns are roughly symmetric (near-normal) and comparable benchmarks are easier to find. Best practice: look at both — if Sortino is clearly above Sharpe, the volatility is mostly upside (good); if similar, volatility is symmetric; for loss protection, rely mainly on Sortino.
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References
Content review: Calculatorism Finance Team. Results are for reference only; please refer to the relevant authorities for the official figures.