Unlike the Sharpe ratio, the Sortino ratio doesn’t penalise upside swings – only returns below the target count as risk. It suits investments with skewed returns, such as options strategies or hedge funds.
How to use the Sortino Ratio Calculator
- Risk-free rate (or target return)
- Asset 1 – average return
- Asset 1 – downside deviation
- Asset 2 – average return
- Asset 2 – downside deviation
Results update as you type, and every field accepts the units shown in its menu.
How it works
Enter the risk-free rate (or target return), and each asset’s average return and downside deviation.
Tips
- Use the nominal annual rate and pick the compounding frequency your bank or broker states.
- Small differences in return or fees compound into large differences over decades.
- Run the calculation with a cautious, a central and an optimistic return to see the range of outcomes.
- Past returns do not guarantee future returns – nothing here is investment advice.
Common mistakes to avoid
- Comparing an APR with an APY or effective rate.
- Ignoring inflation, taxes and fees when judging a real return.
- Entering a percentage as a decimal (5 instead of 0.05 is correct here).
Inputs explained
| Field | What to enter |
|---|---|
| Risk-free rate (or target return) | In % |
| Asset 1 – average return | In % |
| Asset 1 – downside deviation | In % |
| Asset 2 – average return | In % |
| Asset 2 – downside deviation | In % |
What each result means
- Asset 1 – Sortino ratio = ([Asset 1 – average return] – [Risk-free rate (or target return)])÷[Asset 1 – downside deviation]
- Asset 2 – Sortino ratio = ([Asset 2 – average return] – [Risk-free rate (or target return)])÷[Asset 2 – downside deviation]
Example values
How the main result changes when Risk-free rate changes and everything else stays at the example values above:
| Risk-free rate (or target return) (%) | Asset 1 – Sortino ratio |
|---|---|
| 2 | 1.25 |
| 3 | 1.125 |
| 4 | 1 |
| 5 | 0.875 |
| 6 | 0.75 |
| 8 | 0.5 |
Formula
Sortino ratio = (average return − risk-free rate) ÷ downside deviationWorked example
Inputs — Risk-free rate (or target return): 4 %; Asset 1 – average return: 12 %; Asset 1 – downside deviation: 8 %; Asset 2 – average return: 9 %; Asset 2 – downside deviation: 4 %.
Results — Asset 1 – Sortino ratio = 1; Asset 2 – Sortino ratio = 1.25; Better downside-adjusted return = Asset 2.
Frequently asked questions
What is a good Sortino ratio?
Above 2 is considered good.
How is it different from the Sharpe ratio?
It uses downside deviation instead of total standard deviation.
What is downside deviation?
The standard deviation of returns below the target.
What formula does the Sortino Ratio Calculator use?
Sortino ratio = (average return − risk-free rate) ÷ downside deviation.