i What this calculator does
The Sortino ratio measures return per unit of downside risk. It differs from the Sharpe ratio in one respect that matters: it ignores upside volatility, on the grounds that nobody complains about returns being unexpectedly good.
For a strategy with an asymmetric return profile, which describes most trend-following and many option strategies, Sharpe understates the result by penalising the large winning months. Sortino does not.
This calculator is for educational purposes only. Results are estimates and may vary depending on market conditions, spreads, commissions, platform settings, and exchange rates. It should not be considered financial advice.
How to use the Sortino Ratio Calculator
Every field has a working default, so the calculator produces a result the moment the page loads. Replace the defaults with your own figures and the output updates when you press the button.
- 1. Annual Return (%)
- 2. Minimum Acceptable Return (%) Risk-free rate or your own hurdle
- 3. Downside Deviation (%) Volatility of returns below the hurdle only
- 4. Total Volatility (%) For the Sharpe comparison
The result panel reports:
- Sortino Ratio Excess return per unit of downside
- Sharpe Ratio Same return, total volatility
Alongside the headline figures, the calculator reports annual return, minimum acceptable return, excess return, implied upside volatility. Those are the numbers that usually explain why the headline result came out where it did.
The breakdown below the result shows every step of the arithmetic, so you can check the figure rather than trust it. The formula panel names each input as it is used, which is useful if you want to reproduce the calculation in a spreadsheet.
Frequently asked questions
What is downside deviation?
The standard deviation of returns below the minimum acceptable return, ignoring everything above it. Ordinary volatility treats a 10% gain and a 10% loss as equally risky; downside deviation counts only the loss.
When is Sortino better than Sharpe?
Where returns are asymmetric. Trend-following strategies produce many small losses and occasional large gains, and Sharpe penalises those gains as volatility. Sortino measures what an investor actually minds, which is the losing side.
What minimum acceptable return should I use?
The risk-free rate is the common default, which makes it comparable to Sharpe. Using your own required return instead answers a more useful question: how much downside risk you take for returns above what you actually need.
What is a good Sortino ratio?
Above 1 is reasonable and above 2 is strong, with the same caveat that applies to every ratio of this kind: it depends on the period and the sample. A ratio calculated over eighteen months of a rising market says very little about a strategy.
Why is Sortino usually higher than Sharpe?
Because downside deviation is a subset of total volatility, so the denominator is smaller. The interesting figure is the ratio between them: far above 1 means the volatility sits mostly on the upside.
Can I calculate this from my trading journal?
Yes, from monthly returns. Compute the average and the standard deviation for the full set, then the standard deviation of only the months below your hurdle. Twelve months is too few; three years begins to be meaningful.
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