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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.

Mean periodic return (%)Downside deviation (%)

Risk-free rate, annual (%)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.

Frequently asked questions

How does Sortino differ from Sharpe?

Sharpe divides by total standard deviation, which counts both up and down moves. Sortino divides only by downside deviation, so it does not punish a strategy for large gains. For the same data, Sortino is usually higher than Sharpe.

What is downside deviation?

It is the standard deviation computed from only the returns that fell below a target, commonly zero or the risk-free rate. Returns above the target are treated as zero deviation, so only harmful volatility is measured.

When is Sortino more informative than Sharpe?

For strategies with skewed returns, such as trend-following that has many small losses and occasional very large gains. Sharpe would penalise the big winning months; Sortino does not.

Why can Sortino be misleadingly high?

If a sample has very few losing periods, the downside deviation is tiny and the ratio explodes. A large Sortino from a short, benign sample can vanish once a normal drawdown arrives.

What target should downside be measured against?

Most commonly zero (any negative return counts) or the risk-free rate. The choice should be stated because it changes the downside deviation and therefore the ratio.

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