Last updated:
Sharpe's more honest cousin — only counts the volatility that actually hurts.
Sortino ratio is identical to Sharpe except the denominator only counts downside volatility — the standard deviation of returns below a threshold (usually zero). It rewards strategies with big upside spikes without penalty. Created by Frank Sortino in the 1980s as a fix for what he viewed as a flaw in Sharpe.
Sortino = (Rp − T) / Downside DeviationSortino = (Rp − T) / σdownSame numerator as Sharpe (excess return), different denominator. Instead of using all of standard deviation, you only square-and-average the returns that came in below your target. Upside surprises do not count as "risk".
The premise: investors don't actually dislike a 20% up-month. They dislike the 20% down-month that produced the same standard deviation. By only measuring downside dispersion, Sortino gives an honest picture of "unpleasant risk."
Practical consequence: Sortino is higher than Sharpe for positively-skewed strategies (venture-style payoffs, long volatility, momentum) and lower for negatively-skewed strategies (selling premium, short volatility, carry trades). Same-Sharpe, different-Sortino is one of the cleanest ways to spot a strategy that is secretly fragile.
Your portfolio returned 14% annualized. Risk-free rate was 4.5%. Annualized standard deviation was 18% but downside deviation was only 10% (you had big up-months and small-but-frequent down-months).
Sharpe = (14 − 4.5) / 18 = 0.53
Sortino = (14 − 4.5) / 10 = 0.95
Sortino reveals what Sharpe hid: this is actually a fairly skilled positive-skew portfolio. Most of the "volatility" Sharpe penalized was upside.
Sortino runs roughly 1.3× to 1.8× of Sharpe for typical equity portfolios. So 1.0 Sharpe usually means roughly 1.4 Sortino. Read absolute Sortino against that adjusted baseline.
| Sortino | Verdict |
|---|---|
| < 0 | Lost money relative to target — straightforward bad. |
| 0 – 1 | Below-typical. Sharpe is probably below 0.6 too. |
| 1 – 2 | Solid. Roughly where a well-diversified equity portfolio sits. |
| 2 – 3 | Strong. Most likely a positive-skew strategy or favorable regime. |
| > 3 | Exceptional — verify sample size and check skew. |
Upload a brokerage CSV (IBKR, Schwab, Fidelity, Robinhood, Coinbase, Kraken, Binance…) and get your Sortino Ratio computed on your real holdings — alongside 70+ other portfolio metrics. No signup, runs in your browser.
Open the Sortino Ratio Calculator →Above 2.0 is strong, above 3.0 is exceptional. Most balanced equity portfolios sit between 1.0 and 2.0 long-term.
Use Sortino when evaluating any strategy with non-symmetric returns — momentum, venture, long-volatility, growth stocks. For symmetric distributions (broad index funds), Sharpe and Sortino are nearly proportional.
For each return below the target (usually zero or the risk-free rate), you compute (return − target)2. Sum, average, take the square root. Returns above the target are treated as zero.
Because your portfolio has positive skew — more upside variance than downside. Sortino ignores the upside variance Sharpe penalizes.
Upload your brokerage CSV — Foliolytic computes Sortino Ratio plus 70+ other metrics using real historical prices, real Treasury yields, and real CPI data. Free, no signup, your data stays in your browser.
Analyze your portfolio free →