How this calculator works
Sortino divides return above a chosen target by downside deviation relative to that same target. Supply an already calculated downside deviation, not the standard deviation of only losing observations. A common definition uses all observations in the denominator of the squared shortfall average. Compare portfolios over identical periods and using the same target.
Formula
Sortino ratio = (portfolio return - target return)/downside deviation. Return = benchmark + ratio x risk. Risk = (return - benchmark)/ratio.
Worked example
A 12% return, 2% benchmark and 10% downside deviation give a ratio of 1. A 4% return against 6% with 5% risk gives -0.4.
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Frequently asked questions
Can this ratio be negative?
Yes. A negative excess return produces a negative ratio with a positive risk denominator.
What if the risk denominator is zero?
The ratio is undefined; a positive denominator is required.
Can I compare different return periods?
First express returns, benchmark and risk on a consistent basis. Annual and monthly inputs should not be mixed.