Sortino

Sortino Ratio Explained

Risk-adjusted return that only penalises downside volatility

Formula
(Rp − Rf) / σd

where Rp is portfolio return, Rf is the risk-free rate, and σd is the standard deviation of negative returns only (downside deviation).

What is the Sortino Ratio?

The Sortino Ratio is a refinement of the Sharpe Ratio that only penalises downside volatility — the bad kind of risk. Upward price swings, while volatile, are not a problem for investors; it's the downside moves that hurt. By using downside deviation in the denominator instead of total standard deviation, the Sortino Ratio gives a more accurate picture of risk for asymmetric return distributions.

How to interpret it

The Sortino Ratio is always equal to or higher than the Sharpe Ratio for the same portfolio. A large gap between the two signals that most of your volatility is upside — a positive sign. A Sortino above 1.5 is generally considered strong for a diversified portfolio. Like the Sharpe, it's most useful in comparison — against a benchmark, across time periods, or between portfolio configurations.

What counts as a good Sortino?

< 0Downside returns exceed the risk-free rate — significant concern
0 – 1.0Modest — downside risk is eating into your returns
1.0 – 2.0Good — downside is well-compensated
> 2.0Strong — most volatility is upside; asymmetric return profile

What affects your Sortino?

  • Frequency and magnitude of negative return days
  • Tail protection — stop-losses or hedges directly improve Sortino
  • Asset selection — some assets have naturally skewed return distributions
  • Rebalancing frequency — regular rebalancing can cut drawdown events
How Portivex uses Sortino

Portivex computes your Sortino Ratio alongside Sharpe so you can compare both in context. A gap between the two indicates asymmetric volatility — useful for diagnosing whether your risk is coming from a few bad days or persistent noise. The confidence tier and investor profile apply the same way as for Sharpe.

See my Sortino →

Frequently asked questions

When should I use Sortino over Sharpe?
Use the Sortino Ratio when your portfolio has a positively skewed return distribution (e.g. growth stocks, momentum strategies) or when you care specifically about protecting against losses rather than smoothing all volatility. Sharpe penalises all volatility equally, which can make high-upside portfolios look worse than they are.
Why is my Sortino always higher than my Sharpe?
Because Sortino only measures downside deviation in the denominator. If your portfolio has any upside volatility, those moves lower total standard deviation (Sharpe denominator) but don't affect downside deviation (Sortino denominator) — so Sortino will always be ≥ Sharpe.
What's the downside deviation threshold?
Downside deviation typically uses a threshold (MAR) of the risk-free rate or zero. Portivex uses the risk-free rate as the threshold, meaning only days where your return fell below the risk-free return contribute to the downside deviation.

Related metrics

Sharpe
Sharpe Ratio
Volatility
Portfolio Volatility
Max DD
Maximum Drawdown
VaR 95
Value at Risk (VaR)

See your Sortino Ratio in real time.

Add your holdings and Portivex calculates your Sortino — with confidence context and plain-English interpretation tailored to your investor profile.

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