Sortino Ratio Calculator
Measure risk-adjusted return using only downside deviation, so upside volatility is not penalised.
Quick answer: The Sortino ratio is a variant of the Sharpe ratio that divides excess return by downside deviation instead of total standard deviation. Because it ignores upside swings, it rewards strategies whose volatility is mostly to the good side. This tool subtracts the per-period risk-free rate from the mean, divides by the downside deviation, and annualises by the square root of periods per year.
How to use it
Enter the mean periodic return, the downside deviation (the standard deviation of only the returns that fell below the target, usually zero or the risk-free rate), the annual risk-free rate and periods per year. The output is the annualised Sortino ratio. As with Sharpe, the annual risk-free rate is divided by periods per year to match the return period.
Formula
Sortino = ( ( Mean − Risk-free ÷ Periods ) ÷ Downside deviation ) × √Periods
Downside deviation uses only returns below the target (typically zero), so favourable volatility does not inflate the denominator.
Limitations of the Sortino Ratio Calculator
The Sortino Ratio Calculator is a teaching aid, not a live risk system. It does not model the following:
- Selection and multiple-testing bias from picking the best backtest of many variants
- The choice of minimum acceptable return (MAR), which changes the downside deviation and the ratio
- Small samples of losing periods, which make the downside deviation estimate unstable
- Trading costs and slippage, which the return series must already include
Frequently asked questions
When is Sortino more informative than Sharpe for a backtest?
When the backtested returns are skewed or asymmetric, such as trend-following with many small losses and occasional very large gains. Sharpe unfairly penalises the big winning months; Sortino ignores that favourable volatility. For roughly symmetric returns the two agree.
Which MAR should I enter in this Sortino calculator?
The MAR, or minimum acceptable return, is the target below which a backtested return counts as a shortfall — zero, the risk-free rate or a required hurdle. Because it changes the ratio, it must be disclosed alongside any reported Sortino for the number to be comparable.
Can a backtested Sortino be gamed?
Yes, by choosing a target that minimises the apparent downside, or by reporting a strategy whose losses simply have not occurred in the sample yet. Fixing the MAR in advance and stress-testing the tail are the defences against a flattering Sortino.
Why can the Sortino ratio be unstable in a backtest?
Because downside deviation is estimated from only the subset of returns below the target, which can be a small sample for a high-win-rate strategy. Adding one more losing period can then move the ratio noticeably, so a Sortino from a short backtest is fragile.
Does a high backtested Sortino replace maximum drawdown?
No. Sortino summarises downside volatility per unit of return but says nothing about the depth of the worst peak-to-trough loss. Drawdown and Sortino answer different questions, and an honest backtest report shows both.
Runs entirely in your browser — no data leaves your device. Illustrative and educational only; real-world charges and market conditions apply in practice.