Sortino Ratio Calculator
Measure a portfolio's return per unit of harmful downside risk, ignoring upside volatility. A sharper risk-adjusted metric than the Sharpe ratio for asymmetric returns.
Last updated: May 2026
Compare with similar
About this calculator
The Sortino ratio measures how much excess return an investment earns for each unit of downside risk it takes. The formula is Sortino = (Rp − Rf) / DD, where Rp is the Portfolio Return, Rf is the Risk-Free Rate (such as a Treasury yield), and DD is the Downside Deviation — the standard deviation of only the returns that fall below a target (usually the risk-free rate or zero). It is a refinement of the Sharpe ratio, which divides the same excess return by total volatility. The key insight is that investors do not actually dislike volatility per se — they dislike losses. Upside swings inflate the Sharpe ratio's denominator and unfairly penalize a fund that is volatile only in a good way. By counting only harmful, below-target deviations, the Sortino ratio rewards strategies with capped downside and large upside, such as many options or trend-following approaches. A higher ratio is better: it means more reward per unit of bad risk. Edge cases: if downside deviation is zero (no returns below the target in the sample), the ratio is undefined and effectively infinite. Like all such metrics, it is backward-looking and sample-dependent, so a flattering ratio over a calm period can collapse in a downturn. Compare Sortino ratios only across funds measured over the same period and target.
How to use
Example 1 — a fund returning 12% with a 2% risk-free rate and 8% downside deviation. Enter Portfolio Return = 12, Risk-Free Rate = 2, Downside Deviation = 8. Sortino = (12 − 2) / 8 = 1.25. Verify: a ratio of 1.25 means the fund earned 1.25 units of excess return for every unit of downside risk — generally considered good (above 1 is solid, above 2 is excellent). Example 2 — a steadier bond fund returning 6% with the same 2% risk-free rate but only 3% downside deviation. Enter 6, 2, 3. Sortino = (6 − 2) / 3 = 1.33. Verify: even though its raw return is lower, the bond fund has a slightly higher Sortino ratio because it took far less downside risk to earn its excess return — exactly the kind of comparison the metric is designed to surface.
Frequently asked questions
What is the difference between the Sortino and Sharpe ratios?
Both divide a portfolio's excess return by a measure of risk, but they define risk differently. The Sharpe ratio uses total standard deviation, counting both upside and downside swings as 'risk,' whereas the Sortino ratio uses only downside deviation — the volatility of losing returns. This makes Sortino more appropriate for strategies with asymmetric or skewed returns, where big positive moves would unfairly drag down the Sharpe ratio. A fund can have a mediocre Sharpe ratio but an excellent Sortino ratio if its volatility is mostly to the upside. As a rule, use Sharpe for broadly symmetric returns and Sortino when you specifically care about protecting against losses.
What is a good Sortino ratio?
As a rough guide, a Sortino ratio above 1 is considered acceptable, above 2 is very good, and above 3 is excellent — but these thresholds depend heavily on the asset class, time period, and target return used. Because the denominator only counts downside, Sortino ratios tend to run higher than Sharpe ratios for the same fund, so do not compare the two scales directly. The number is only meaningful relative to peers measured the same way over the same window. A single high reading from a calm market can be deceptive. Always look at the ratio alongside the absolute return and the length and conditions of the measurement period.
What is downside deviation and how is it calculated?
Downside deviation is like standard deviation but computed using only the returns that fall below a chosen minimum acceptable return (often the risk-free rate or zero). You take each shortfall below the target, square it, average those squared shortfalls over all periods, and take the square root. Returns above the target contribute zero, which is exactly what makes the metric focus on harm rather than mere variability. Calculating it correctly requires a full series of periodic returns, not just a summary number, so this calculator asks you to supply the downside deviation directly. Using ordinary standard deviation by mistake would turn the Sortino ratio back into a Sharpe ratio.
When should I NOT use the Sortino ratio?
Avoid it when you have very few return observations or no periods below the target, because the downside deviation becomes unstable or zero and the ratio blows up to infinity, conveying false precision. It is also a poor choice for comparing funds measured over different time windows or against different target returns, since both choices change the result. Like all historical risk metrics it is backward-looking, so it cannot predict future drawdowns and can look great right before a crash. Do not use it as a standalone decision rule — pair it with maximum drawdown, absolute returns, and a qualitative view of the strategy. For broadly symmetric return distributions, the simpler Sharpe ratio is usually sufficient.
Can the Sortino ratio be negative?
Yes. The ratio is negative whenever the portfolio return is below the risk-free rate, because the numerator (excess return) turns negative while the denominator stays positive. A negative Sortino ratio means the investment failed to beat a risk-free asset while still exposing you to downside risk — a poor outcome on both counts. Comparing negative ratios is tricky and often not very meaningful, since a 'less negative' ratio can result from either better returns or smaller downside, which are quite different stories. When you see a negative value, look directly at the underlying return and downside figures rather than trying to rank by the ratio alone.