i What this calculator does
Quick answer: Measure return against downside deviation rather than total volatility, and compare it to the Sharpe ratio on the same figures. With the default inputs (annual return 18.5, minimum acceptable return 9.8), it returns sortino ratio of 0.946.
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
The form arrives filled in. Replacing one value at a time is the clearest way to see what the output depends on.
- 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 arithmetic is laid out below the result, in the order it was performed.
Common results
What the calculator returns as the annual return changes, with every other input at its default (minimum acceptable return 9.8, downside deviation 9.2, total volatility 16.4).
| Annual Return | Sortino Ratio | Sharpe Ratio | Sortino / Sharpe |
|---|---|---|---|
| 5% | -0.522 | -0.293 | 1.78 |
| 10% | 0.022 | 0.012 | 1.78 |
| 20% | 1.109 | 0.622 | 1.78 |
| 40% | 3.283 | 1.841 | 1.78 |
| 75% | 7.087 | 3.976 | 1.78 |
| 150% | 15.239 | 8.549 | 1.78 |
How the calculation works
The calculator takes four inputs: Annual Return, Minimum Acceptable Return, Downside Deviation and Total Volatility. Minimum Acceptable Return: Risk-free rate or your own hurdle. Downside Deviation: Volatility of returns below the hurdle only. Total Volatility: For the Sharpe comparison. The excess return is 18.50% - 9.80% = 8.70%. The sortino is 8.70% / 9.20% = 0.946. The sharpe is 8.70% / 16.40% = 0.530. The comparison is a ratio above 1 means the volatility is mostly on the upside. The breakdown also lists annual return, minimum acceptable return, excess return and downside deviation.
A worked example in rand
With the default inputs (annual return 18.5%, minimum acceptable return 9.8%, downside deviation 9.2% and total volatility 16.4%), the calculator returns a sortino ratio of 0.946, excess return per unit of downside. It also reports sharpe ratio 0.530 and sortino / sharpe 1.78. Double the annual return to 37 and the sortino ratio moves from 0.946 to 2.957 and the sharpe ratio moves from 0.530 to 1.659. The sortino / sharpe does not change, because it does not depend on that input.
How to read the result
With these inputs the calculator's own verdict reads: "A Sortino of 0.95 means the excess return is small relative to the downside taken." The verdict changes as the inputs cross the thresholds the calculator uses, and it is the fastest way to see which side of them you are on. Statistics from fewer than about 50 trades say little; treat any ratio as provisional until the sample is large enough, and compare like with like: a scalper's win rate and a swing trader's cannot be judged on the same scale. The background to this calculation is in What Is a Good Risk-Reward Ratio for Trading?.
The South African angle
Three things change the picture for a South African trader using the sortino ratio trading calculator. Rand-denominated statements make a strategy on dollar instruments look better in weak-rand years and worse in strong-rand years; a statistic worth trusting is computed in the instrument's currency. Signal sellers and trading educators in South Africa frequently quote win rates without the average win and average loss that give them meaning; a 70% win rate with a 1:3 reward-to-risk ratio loses money. Swap charges on rand positions, booked nightly, show up in a trade history as separate lines on many platforms and are routinely left out of performance statistics computed from closed trades alone. The figures behind these points, and the ones the sortino ratio trading calculator itself uses, are on the South African forex trading statistics.
Spotted an outdated figure? If a rate, limit or formula in this calculator no longer matches its source, email us the page and the source. A material correction is dated on the Updates Log.
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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