Measure excess return per unit of downside volatility only, ignoring upside swings.
The Sortino ratio replaces total volatility with downside deviation, measuring only the variability investors actually dislike. It is usually higher than the Sharpe ratio because upside swings are excluded from the denominator. For strategies with asymmetric returns — options selling, trend following — Sortino is far more informative than Sharpe.
Sortino Ratio
Sortino Ratio = (portfolio return − risk-free rate) ÷ downside deviation
Sortino Ratio = (portfolio return − risk-free rate) ÷ downside deviation The Sortino ratio replaces total volatility with downside deviation, measuring only the variability investors actually dislike. It is usually higher than the Sharpe ratio because upside swings are excluded from the denominator.
For strategies with asymmetric returns — options selling, trend following — Sortino is far more informative than Sharpe.
This calculator takes 3 inputs: Portfolio return, Risk-free rate, Downside deviation. The pre-filled defaults are a realistic starting point — replace them with figures from your own environment for a result you can act on.