Sortino Ratio Calculator
Not All Volatility Is a Problem — Only the Downside Is
Standard deviation, the ingredient behind the Sharpe ratio, penalizes upside swings exactly as harshly as downside ones, even though an investor rarely complains about a portfolio that spikes higher than expected. The Sortino ratio corrects for that by measuring excess return against downside deviation alone — volatility calculated only from returns that fell short of a target. It rewards portfolios that produce upside surprises without punishing them the way total-volatility measures do.
The Formula
Rp is the portfolio's return, the target (or minimum acceptable) return is the threshold below which a return counts as "downside," and downside deviation measures the spread of only the returns that fell below that threshold.
Where This Matters
- Evaluating strategies with asymmetric returns — options-based, trend-following, and other strategies with irregular upside spikes are frequently penalized unfairly by standard deviation; Sortino corrects for this.
- Setting a return target explicitly — because the ratio is built around a stated target return rather than the risk-free rate, it directly answers "how well did this strategy perform against my actual goal."
- Retirement and income portfolios — investors who care specifically about avoiding shortfalls below a required return find Sortino a more relevant risk measure than total volatility.
| Input | Value |
|---|---|
| Portfolio return | 10% |
| Target return | 4% |
| Downside deviation | 6% |
| Sortino Ratio | 1.00 |
(10% − 4%) ÷ 6% = 1.00. A Sortino ratio above 1 is generally considered good; above 2 is considered very good.
How to Use This Calculator
- Enter the portfolio's return over the period as a percentage.
- Enter the target, or minimum acceptable, return for the same period.
- Enter the downside deviation — the volatility calculated using only returns below the target.
- Select Calculate to get the Sortino ratio.
Related Calculations
Compare against the Treynor Ratio Calculator, which measures risk-adjusted return using beta instead of downside deviation, or the Calmar Ratio Calculator for a drawdown-based view of downside risk.