— Stock Market
Sortino Ratio Calculator
Calculate Sortino ratio, a risk-adjusted return measure that counts only downside volatility. Enter return, target return, and downside deviation, paste a returns series, or compare portfolios with the Sharpe ratio shown alongside.
Sortino ratio
1.13
- Excess return
- 9%
Try: 12% return, 3% MAR, 8% downside, With the Sharpe alongside, From a monthly returns series, Compare three portfolios
— Sortino ratio by portfolio
Download— How it works
Sortino = (return − minimum acceptable return) ÷ downside deviation, where downside deviation is the volatility of only those returns below the target (MAR). Annualized = Sortino × √(periods per year). The MAR defaults to the risk-free rate or zero.
Only the risk that hurts
Standard deviation, the risk measure behind the Sharpe ratio, treats every deviation from the average as risk — including the big positive surprises that make investors happy. That feels wrong, and the Sortino ratio fixes it. It replaces total volatility with downside deviation: the volatility of only those returns that fall below a target, the minimum acceptable return. An investment that rockets up and drifts down gently has a low downside deviation and so a high Sortino, even if its Sharpe is unremarkable.
Worked example — a 12% return, 3% target, 8% downside deviation: Sortino = (12 − 3) ÷ 8 = 1.13. If its total volatility is 15%, the Sharpe is only 9 ÷ 15 = 0.6 — the gap shows much of the swing was upside, which Sortino rightly ignores.
Sortino versus Sharpe
Read together, the two ratios tell you something neither does alone. When the Sortino is much higher than the Sharpe, the investment’s volatility is mostly upside — the kind you welcome. When they’re close, the swings are symmetric, with as much downside as up. A Sortino below the Sharpe is unusual and points to a left-skewed, downside-heavy return pattern. The calculator shows both side by side in single and series mode, so you can judge not just how much risk-adjusted return there is, but what kind of risk you’re being compensated for.
The target, and reading the result
The minimum acceptable return is yours to set: zero (penalize only actual losses), the risk-free rate (the usual default), or a personal hurdle you must beat. Only returns below it feed the downside deviation. From a returns series, the calculator flags which periods fell below the target — the ones doing the damage — and annualizes by the square root of the number of periods, just like volatility. The same rough scale applies as for the Sharpe: above 1 is good, above 2 very good, above 3 excellent. As ever, it rests on historical returns and an assumption that they’re a fair guide to the future. Not investment advice.
— Reader questions
How do I calculate the Sortino ratio?
Subtract the minimum acceptable return from the portfolio return, then divide by the downside deviation — the volatility of only the returns below the target. A 12% return, 3% target and 8% downside deviation gives (12 − 3) ÷ 8 = 1.13.
What is the difference between the Sortino and Sharpe ratios?
Sharpe divides excess return by total volatility (all ups and downs); Sortino divides by downside deviation only (the volatility of losses). Sortino doesn’t penalize upside swings, so it’s kinder to investments that are volatile mainly on the way up.
What is the minimum acceptable return (MAR)?
The target return below which a result counts as “downside.” It’s commonly set to zero (penalize only losses) or the risk-free rate, but you can use any personal hurdle. Only returns below it contribute to the downside deviation.
What is a good Sortino ratio?
Higher is better. As a rough guide, above 1 is good, above 2 is very good, and above 3 is excellent. Because it ignores upside volatility, a given investment’s Sortino is usually higher than its Sharpe.
How do I annualize the Sortino ratio?
Multiply the periodic Sortino by the square root of the number of periods per year — √12 for monthly returns, √52 weekly, √252 daily. Set the frequency and the calculator does it automatically.