Sortino Ratio Calculator

Formula

The formula to calculate the Sortino Ratio (SR) is:

\[ SR = \frac{AR - RR}{TD} \]

Where:

\( SR \) is the Sortino ratio.
\( AR \) is the average realized return (%).
\( RR \) is the required rate of return (%).
\( TD \) is the target downside deviation (%).

What is the Sortino Ratio?

The Sortino ratio measures the excess return a given portfolio achieved per unit of downside risk the portfolio takes. It focuses on the negative deviation from the required rate of return, providing a more accurate assessment of risk-adjusted performance by penalizing only the downside volatility.

Example Calculation

Consider an example where:

Average Realized Return (AR): 15%
Required Rate of Return (RR): 5%
Target Downside Deviation (TD): 10%

Using the formula to calculate the Sortino Ratio:

\[ SR = \frac{15 - 5}{10} = \frac{10}{10} = 1 \]

This means that the Sortino ratio for this example is 1.