What is Sortino Ratio?
A risk-adjusted return measure like the Sharpe ratio, but it only penalizes downside volatility — not upside swings.
Educational — not investment advice
The Sharpe ratio divides excess return by total volatility, treating big up moves as "risk" just like big down moves. The Sortino ratio fixes that asymmetry: it divides excess return by downside deviation only, so being volatile to the upside doesn’t count against you.
For strategies with lopsided returns — lots of small gains and occasional sharp losses, or vice versa — Sortino often describes the real experience better than Sharpe.
The trap most people miss
Sortino uses fewer data points (only the downside), so it is noisier and easier to game with a short or cherry-picked window. A high Sortino over a calm stretch says little about a crisis.
Frequently asked about Sortino Ratio
Sortino vs Sharpe — which is better?
Neither is universally better. Sharpe penalizes all volatility; Sortino only downside. Sortino suits investors who don’t mind upside swings and care mainly about losses.
What is a good Sortino ratio?
Higher is better and above ~2 is often considered strong, but it depends heavily on the period and asset class — compare like with like.
Related terms
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This definition is for educational purposes only and is not investment, tax, or financial advice. Concepts are explained in general terms; how they apply to your situation can differ. Always do your own research.