Sortino Ratio
Risk-adjusted return penalizing only downside volatility
What is Sortino Ratio?
Sortino Ratio A variation of the Sharpe ratio that only penalizes downside volatility, not upside volatility. Calculated as excess return divided by downside deviation. The Sortino ratio is often more appropriate for options strategies because large upside moves should not be penalized as risk. Premium-selling strategies may have better Sortino ratios than Sharpe ratios.
Complete Definition
A variation of the Sharpe ratio that only penalizes downside volatility, not upside volatility. Calculated as excess return divided by downside deviation. The Sortino ratio is often more appropriate for options strategies because large upside moves should not be penalized as risk. Premium-selling strategies may have better Sortino ratios than Sharpe ratios.
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