Sortino ratio

A risk-adjusted return measure that penalizes returns below a chosen target.

The Sortino ratio compares the return above a chosen target with downside deviation: the variability of returns that fall below that target. Unlike the Sharpe ratio, it does not treat returns above the target as risk.

The result depends on the target return, sampling frequency, annualisation method and precise downside deviation definition. Compare Sortino ratios only when these choices are consistent, and read the measure alongside drawdown and the underlying return distribution.