The Sortino Ratio is similar to the Sharpe Ratio but only considers downside volatility. It penalises negative deviations from the mean while ignoring positive volatility, providing a more nuanced view of risk-adjusted returns.
Sortino Ratio = (Rp - Rf) / σd where σd = downside deviation (only negative returns)
A portfolio with 12% return, 4% risk-free rate, and 10% downside deviation has a Sortino of 0.80. This is typically higher than the Sharpe Ratio since upside volatility is excluded.
AllInvestView calculates both Sharpe and Sortino ratios on your portfolio analytics page.
Use Sortino when returns are asymmetric (e.g., options strategies, hedge funds). If your portfolio has large upside swings that inflate standard deviation, Sortino gives a fairer risk-adjusted picture.
Yes — a higher Sortino means more return per unit of downside risk. But compare Sortino ratios only between similar investment strategies, not across different asset classes.