Risk and return · updated October 21, 2026
What is the Sortino ratio and how is it calculated
The Sortino ratio is similar to Sharpe, but it only counts downward price moves as risk, not upward ones. It suits stocks that rise in jumps, because it does not punish them for big gains.
The Sortino ratio formula
- Volatility of down days
- The standard deviation calculated only from days when the price fell, scaled up to a year.
Worked example
A stock returned 14% a year, the risk-free rate is 4%, and the volatility of down days is 15%.
Sortino usually comes out higher than Sharpe for the same stock.
How to read the Sortino ratio
Compare Sortino between stocks over the same period; in a rising market, they all look good.
When the Sortino ratio can fool you
Few down days: over a short period with few drops, the ratio can come out very high and misleading.
Related terms
Questions about the Sortino ratio
Sortino or Sharpe?
Use both. If Sortino is much higher than Sharpe, the stock mostly moves in upward jumps.
These explanations are for information only. They are not a recommendation to buy or sell.
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