Sortino Ratio

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Like the Sharpe ratio, but penalizes only downside deviation. Better suited to asymmetric return distributions.

Details

• category: Risk-Adjusted Performance
• formula: Sortino = (R_p - MAR) / σ_d
• formula latex: \text{Sortino} = \dfrac{R_p - \text{MAR}}{\sigma_d}
• assumptions: Investor cares only about downside deviation
• limitations: Requires sufficient sample of below-MAR returns, Sensitive to MAR choice
• related terms: sortino-ratio, downside-deviation, minimum-acceptable-return

Formula

Sortino = (R_p - MAR) / σ_d