Sortino Ratio Calculator

Measure risk-adjusted return using only downside volatility. Enter the portfolio return, a minimum acceptable return (MAR), and the downside deviation to get the Sortino Ratio.

Quick Facts

Formula
Sortino = (Rp − MAR) / Downside Deviation
Only volatility from returns below the MAR counts against the score.
Origin
Developed by Frank A. Sortino
A refinement of the Sharpe Ratio that ignores upside volatility.

Your Results

Calculated
Sortino Ratio
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Excess return per unit of downside risk
Excess return
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Portfolio return minus MAR
Downside deviation used
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Denominator of the ratio
Rating
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General reference band

Ready

Enter the portfolio return, MAR, and downside deviation, then press Calculate.

How the Sortino Ratio Calculator works

The Sortino Ratio measures how much excess return an investment generates for each unit of downside risk it takes on. It was developed by Frank A. Sortino as a refinement of the Sharpe Ratio: instead of penalizing all volatility equally, it only penalizes the volatility that comes from returns falling below a target — so a strategy with big upside swings but few downside surprises scores better under the Sortino Ratio than it would under the Sharpe Ratio.

The formula

Sortino Ratio = (Rp − MAR) / σd

where Rp is the portfolio's (or investment's) average annualized return, MAR is the minimum acceptable return — the return threshold below which a period counts as "downside" (often set to the risk-free rate or to 0%) — and σd is the downside deviation: the standard deviation calculated using only the periods where the return fell short of the MAR. All three figures should be expressed on the same time basis (this calculator uses annualized percentages).

Where downside deviation comes from

Downside deviation is computed from a series of periodic returns R1...Rn as:

σd = √[ (1/n) × Σ min(0, Ri − MAR)2 ]

Only the shortfalls below the MAR are squared and averaged; periods that met or beat the MAR contribute zero. This calculator takes the downside deviation directly as an input so it can be reused once you already have that figure from a spreadsheet, fund fact sheet, or portfolio analytics tool — it does not recompute it from a raw return series.

Worked example

Suppose a portfolio returned 12% annualized, the minimum acceptable return is 3% (roughly the risk-free rate), and the downside deviation of returns below that MAR was 9%. The excess return is 12% − 3% = 9%, so the Sortino Ratio is 9% / 9% = 1.00 — each unit of downside risk earned, on average, one unit of excess return.

Sortino Ratio versus Sharpe Ratio

Both ratios divide excess return by a measure of volatility, but the Sharpe Ratio's denominator is total standard deviation (upside and downside combined), while the Sortino Ratio's denominator is downside deviation only. Because downside deviation is calculated from a subset of the full return series, it is typically smaller than total standard deviation, which usually makes the Sortino Ratio higher than the Sharpe Ratio for the same portfolio. Investors who care more about avoiding losses than about smoothing all volatility often prefer the Sortino Ratio for that reason.

Reading the result

As a general industry rule of thumb, a Sortino Ratio below 1.0 suggests the downside risk taken has not been well compensated by return, a ratio between 1.0 and 2.0 is often considered acceptable to good, and a ratio above 2.0 is generally viewed as strong risk-adjusted performance. These are informal reference bands, not a regulatory standard — appropriate benchmarks vary by asset class, time period, and the MAR chosen, so the ratio is most useful when comparing similar strategies over the same window with the same MAR.

Frequently Asked Questions

How is the Sortino Ratio calculated?
Sortino Ratio = (Portfolio Return − Minimum Acceptable Return) / Downside Deviation. The numerator is the excess return above a target (often the risk-free rate or 0%), and the denominator is the downside deviation — the standard deviation of only the returns that fell short of that target. Both the return and the downside deviation should be entered on the same annualized basis.
How is the Sortino Ratio different from the Sharpe Ratio?
The Sharpe Ratio divides excess return by total standard deviation, which penalizes upside and downside volatility equally. The Sortino Ratio divides excess return by downside deviation only, so large positive swings do not drag the score down. For the same portfolio, the Sortino Ratio is typically higher than the Sharpe Ratio because the denominator only reflects harmful volatility.
What is a good Sortino Ratio?
As a general reference, a Sortino Ratio below 1.0 signals downside risk that has not been well compensated, 1.0 to 2.0 is considered acceptable to good, and above 2.0 is generally viewed as strong risk-adjusted performance. These bands are common industry rules of thumb rather than a fixed standard, and the right benchmark depends on the asset class and time period being compared.
Where does downside deviation come from?
Downside deviation is calculated from a historical or projected series of periodic returns as the square root of the average squared shortfall below the minimum acceptable return, counting only periods that underperformed the target. This calculator accepts that figure as a direct input so it can be reused for portfolios, funds, or strategies once the downside deviation has been computed from the underlying return series.

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