Sortino Ratio Template

What is the Sortino Ratio?

he Sortino ratio is a kind of variation of Sharp ratio where it takes into consideration the harmful volatility and differentiates the same from the total overall volatility by measuring the risk-adjusted return of a portfolio of asset or investment portfolio, or a strategy, while it penalizes those returns falling lower from the user’s target that is those having downward deviation.

For calculating the Sortino ratio, the Portfolio’s actual return is deducted from the minimum accepted or expected return. The above difference is divided by the standard deviation of the negative asset returns or the downward deviation.

The formula is mathematically represented as below:

Sortino Ratio = (r – r_f) / σ_d

Where,

• r: Expected Return
• r_f: Risk-Free Rate of Return
• σ_d: Standard Deviation of Negative Assets Return / Downside Deviation