Term Glossary

Metrics, Models & Concepts

Sortino Ratio


The Sortino ratio is a modification of the Sharpe ratio, using downside deviation rather than standard deviation as the measure of risk - i.e., only those returns falling below a user-specified target or required rate of return are considered risky. \begin{equation} \text{Sortino Ratio}=\frac{E(r)-MAR}{\delta_{MAR}} \end{equation}

\(E(r)\)
expected return
\(MAR\)
minimum acceptable return
where \(\delta_{MAR}\) or "downside risk" is computed as: \begin{equation} \delta_{MAR}=\sqrt{\int_{-\infty}^{MAR}(MAR-r)^{2}f(r)dr} \end{equation}
\(r\)
asset return
\(f(r)\)
the probability density distribution for the asset returns
\(MAR\)
minimum acceptable return

Sortino ratio requires the investor to set a minimum acceptable rate of return (MAR), which is a return that he/she would be comfortable with. Any return above the MAR is not included for the purpose of calculating the Sortino Ratio.


Function Reference
portfolio_sortinoRatio, position_sortinoRatio