Sortino Ratio (Downside Risk) Calculator

Calculate Sortino ratio to measure your risk-adjusted returns focusing specifically on downside risk rather than total volatility.

Annual portfolio return

Minimum return you require (often risk-free rate or hurdle rate)

Standard deviation of returns below target (only negative deviations)

For comparison purposes

Sortino Ratio = (Portfolio Return - Target Return) / Downside Deviation\n\nDownside Deviation = √[Σ(min(Ri - T, 0))² / N]\nWhere Ri = return, T = target return, N = number of periods
Portfolio Return: 15%\nTarget Return: 5%\nDownside Deviation: 12%\n\nExcess Return = 15% - 5% = 10%\nSortino Ratio = 10% / 12% = 0.83\n\nThis is a good risk-adjusted return.

What is the Sortino ratio?

Sortino ratio measures risk-adjusted returns by only penalizing DOWNSIDE volatility. Unlike Sharpe ratio which penalizes all volatility (up and down), Sortino recognizes that upside volatility is actually good. Formula: (Return - Target) / Downside Deviation. Better for asymmetric return distributions.

How does Sortino differ from Sharpe ratio?

Sharpe uses total standard deviation (both up and down), Sortino uses only downside deviation (returns below target). If your returns are highly asymmetric with big gains, Sortino gives a better assessment. Sharpe penalizes you for high returns; Sortino rewards them. Use Sortino for assets with skewed returns.

What is a good Sortino ratio?

Sortino ratio benchmarks: Above 2.0 = excellent (top 10%), 1.0-2.0 = good (top 25%), 0.5-1.0 = average, below 0.5 = below average, negative = poor. Many mutual funds target 1.0+. Top hedge funds often achieve 2.0+. Compare to similar investment styles since benchmarks vary.

What is downside deviation?

Downside deviation measures volatility only when returns fall below a target (or MAR - Minimum Acceptable Return). It squares only NEGATIVE deviations from target, takes average, then square root. This ignores "good" volatility (above-target returns) and focuses purely on harmful risk.

What return target should I use?

Common targets: (1) Risk-free rate (Treasury yield) - compares to safe investments, (2) Zero - checks if you lose money, (3) Your required return (e.g., 8%) - against your goals, (4) Inflation + some - to preserve purchasing power. Choose based on your investment objectives.

When should I use Sortino over Sharpe?

Use Sortino when: (1) Returns are highly asymmetric (options, momentum strategies), (2) Upside volatility is desirable, (3) You care about downside protection specifically, (4) Comparing to other Sortino users. Use Sharpe for symmetric returns (index funds, bonds) and standard comparisons.

What is the Upside Potential Ratio?

Upside Potential Ratio = (Return - Risk-Free Rate) / Downside Deviation. It measures how much upside you get per unit of downside risk. Similar to Sortino but uses risk-free rate as target instead of arbitrary target. Useful for comparing to risk-free alternative like Treasury bills.

How is Sterling ratio different?

Sterling ratio uses average downside deviation over the past 3 years (or specified period), multiplied by 0.75, as the denominator. This smooths out unusual downside years. Formula: (Average Return - Target) / (Avg Downside Deviation × 0.75). More conservative than standard Sortino.