Sortino ratio

The Sortino ratio is a measure of a risk-adjusted return of an investment asset. It is an extension of the Sharpe ratio. While Sharpe ratio takes into account any volatility in return of an asset, Sortino ratio differentiates volatility due to up and down movements. The up movements are considered desirable and not accounted in the volatility.

That is, the Sortino ratio does not penalize a fund for its upside volatility. The ratio is calculated as

$S = {{{<\!R\!>} - R_f}\over \sigma_d},$

where < R > is the expected value of asset return, R_f is an expected return of another "standard" asset, such as the risk free rate of return, and σ_d is the standard deviation of the negative asset returns.

The ratio was developed by Frank A. Sortino.

Sortino ratio

See also