Sortino Ratio

This ratio is similar to the Sharpe ratio, using downside risk rather than standard deviation as the denominator. Thus, the Sortino ratio is calculated by subtracting the risk-free rate from the return of the portfolio and then dividing by the downside deviation. The Sortino ratio measures the return to “bad” volatility, thereby giving investors a measure to assess risk in a better manner than simply looking at excess returns to total volatility. A large Sortino ratio indicates a low risk.