Sortino Ratio Calculator: Focus on Downside Risk

Investors care about returns, but risk comes in different forms. The Sortino Ratio improves on the Sharpe Ratio by focusing only on downside risk, ignoring volatility from upside gains.

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Our Sortino Ratio Calculator allows you to quickly evaluate your portfolio’s performance considering only negative volatility, helping you understand how well your portfolio handles risk.

What is the Sortino Ratio?

The Sortino Ratio measures risk-adjusted returns using only the downside deviation instead of total volatility. This ensures you’re only penalized for returns below a target or risk-free rate, not upside variability.

Sortino Ratio Formula: Sortino Ratio=Portfolio Return−Risk-Free RateDownside Deviation\text{Sortino Ratio} = \frac{\text{Portfolio Return} – \text{Risk-Free Rate}}{\text{Downside Deviation}}Sortino Ratio=Downside DeviationPortfolio Return−Risk-Free Rate

Portfolio Return: Expected return of the portfolio.
Risk-Free Rate: Return of a risk-free investment.
Downside Deviation: Measures volatility of negative returns only.

A higher Sortino Ratio indicates better performance adjusted for downside risk.

How to Use the Sortino Ratio Calculator

Enter Portfolio Return (%).
Enter Risk-Free Rate (%).
Enter Downside Deviation (%).
Click Calculate.

The calculator shows the Sortino Ratio and a color-coded indicator:

Sortino Ratio	Interpretation	Indicator
≥ 2	Excellent: High downside risk-adjusted return	✅ Green
1 – 1.99	Moderate: Acceptable return	⚠️ Orange
< 1	Low: Poor downside risk-adjusted return	❌ Red

Example:

Portfolio Return = 12%
Risk-Free Rate = 5%
Downside Deviation = 3%

Sortino=12−53=2.33Sortino = \frac{12 – 5}{3} = 2.33Sortino=312−5=2.33

✅ Excellent: Your portfolio performs very well considering downside risk.

Why the Sortino Ratio Matters

For Investors: Focuses on negative returns rather than total volatility.
For Portfolio Managers: Helps identify portfolios that manage downside risk effectively.
For Analysts: Provides a more realistic measure of risk-adjusted returns than Sharpe when upside volatility exists.

A high Sortino Ratio means a portfolio is efficiently managing downside risk while still generating returns.

Key Takeaways

The Sortino Ratio evaluates performance considering only downside risk.
Higher Sortino = better downside risk-adjusted return.
Use it alongside Sharpe Ratio, Treynor Ratio, ROE, ROA, PEG, etc., for complete portfolio analysis.

Try the Sortino Ratio Calculator Now

Use our Sortino Ratio Calculator to quickly assess your portfolio’s performance against downside risk and make informed investment decisions.