Transparent method
The formula
Worked example
Example inputs
How to interpret the result
Sortino ratio only penalizes downside volatility, the swings that actually hurt, while a strategy with big upside swings and none on the downside can score very well here even though its total volatility, Sharpe-style, would look mediocre. Two investments with identical Sharpe ratios can carry very different Sortino ratios depending on which direction their volatility runs.
Before you rely on it
What to check
Compare Sortino alongside Sharpe rather than in isolation, since the gap between the two tells you whether an investment's volatility skews toward gains or losses.
The common error
Where people go wrong with sortino ratio calculator
Treating Sortino and Sharpe as interchangeable risk-adjusted measures. An investment with lopsided upside volatility can score well on Sortino while looking only average on Sharpe, and the two are measuring genuinely different things.
Sensitivity evidence
How portfolio annual return changes the risk-adjusted ratio
| Portfolio annual return | Risk-adjusted ratio | Excess return |
|---|---|---|
| 6.0% | 0.17× | 2.0% |
| 8.0% | 0.33× | 4.0% |
| 10.0%worked example | 0.50× | 6.0% |
| 12.0% | 0.67× | 8.0% |
| 14.0% | 0.83× | 10.0% |
Every input, tested
Which input moves the risk-adjusted ratio most
| Input | Tested from | To | Risk-adjusted ratio at each end | Swing |
|---|---|---|---|---|
| Portfolio annual return | 8.0% | 12.0% | 0.33× to 0.67× | 0.33× (67%) |
| Risk-free or benchmark return | 3.0% | 5.0% | 0.58× to 0.42× | 0.17× (33%) |
| Volatility or downside deviation | 10.0% | 14.0% | 0.60× to 0.43× | 0.17× (34%) |
Two variables at once
Risk-adjusted ratio by portfolio annual return and risk-free or benchmark return
| Portfolio annual return \ Risk-free or benchmark return | 2.0% | 4.0% | 6.0% |
|---|---|---|---|
| 6.0% | 0.33× | 0.17× | 0.00× |
| 8.0% | 0.50× | 0.33× | 0.17× |
| 10.0% | 0.67× | 0.50× | 0.33× |
| 12.0% | 0.83× | 0.67× | 0.50× |
| 14.0% | 1.00× | 0.83× | 0.67× |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Portfolio annual return | 10.0% |
| Risk-free or benchmark return | 4.0% |
| Volatility or downside deviation | 12.0% |
| Risk-adjusted ratio | 0.50× |
| Excess return | 6.0% |
Where the inputs come from
The portfolio return and the benchmark or minimum acceptable return come from the same period. The risk input here is the downside deviation, which counts only returns below the target and is not the same as standard deviation. If your source reports only standard deviation, this calculator will give the Sharpe ratio, not the Sortino ratio. Some data providers publish downside deviation on fund pages.
When the result stops applying
Downside deviation depends on the minimum acceptable return you choose, so two analysts can get different answers from the same data. It needs many observations of below-target returns to be reliable. As with Sharpe, a short history may flatter a fund, and neither ratio captures liquidity or concentration risk.
What to compare it with
Read it with the Sharpe ratio for the same fund, and with the maximum drawdown page for the worst loss you would have lived through. The investment volatility calculator annualizes periodic deviations, and the two-asset risk page shows how combining assets changes risk.
People also ask
Frequently asked questions
How is Sortino different from Sharpe?
Sharpe divides excess return by total volatility, while Sortino divides by downside deviation only, so it does not penalize a fund for large gains.
What is downside deviation?
It measures how far returns fall below a target, ignoring returns above it. It is calculated from the negative-side observations only.
When is the Sortino ratio more useful?
For strategies with skewed returns, such as options or trend-following, where upside volatility is welcome and should not count as risk.