Risk & Money Management
Advanced
Sortino Ratio
Like Sharpe but only penalises downside volatility — a better measure for asymmetric strategies.
Definition
Sortino fixes Sharpe’s main weakness: it uses only the standard deviation of negative returns (downside deviation). Strategies that have big winners and small losers will look much better under Sortino than Sharpe.
Formula
Sortino = (Return − Risk-free rate) / Downside deviation