Unlike the Sharpe ratio, which penalizes upside volatility just as much as downside — the Sortino ratio uses downside deviation only.
How it works
Portfolio return minus a target (minimum acceptable) return, divided by downside deviation, gives the Sortino ratio.
What this does not include
Calculating downside deviation itself requires a full return history below the target return — this calculator takes that figure as a direct input rather than computing it from raw historical returns.
How to use this calculator
- Enter portfolio return, target return, and downside deviation.
A worked example
A portfolio returning 12% against a 3% target, with 8% downside deviation: Sortino ratio = (12 − 3) ÷ 8 = 1.125.
What the variables mean
| Variable | Meaning |
|---|---|
| Portfolio return | Actual return achieved |
| Target return | Minimum acceptable return, the benchmark for “downside” |
| Downside deviation | Volatility measured only from returns below the target, ignoring upside swings |
Edge cases worth knowing
Unlike the Sharpe ratio, this only penalizes downside volatility. A portfolio with big upside swings but no downside surprises gets a better Sortino ratio than an equally volatile Sharpe ratio would suggest, since upside variance isn’t counted as risk here.
Zero downside deviation makes the ratio undefined — a portfolio that never fell below its target has no downside risk to divide the excess return by.
Frequently asked questions
Why is Sortino often preferred over Sharpe?
Because Sharpe’s standard deviation treats large positive swings the same as large negative ones — Sortino specifically isolates the downside risk investors actually care about avoiding.
What’s considered a good Sortino ratio?
Higher is better, with a ratio of 2.0 or above commonly considered strong and 3.0 or above considered excellent, though context and asset class matter.
What is a “target return” in this calculation?
The minimum acceptable return an investor sets as their threshold — often the risk-free rate, but it can be any benchmark return the investor considers meaningful.
