Investor Glossary-sortino ratioInvestor Glossary-sortino ratioInvestor Glossary-sortino ratioInvestor Glossary-sortino ratioInsightful stock market charts - Click here
investor
Categories    # A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Sortino Ratio

The HTML to link to this page
 

The Sortino Ratio is a tool, like the Sharpe Ratio, that allows investors to gauge risk-adjusted returns on an asset or portfolio of assets. Unlike the Sharpe Ratio, however, the Sortino Ratio makes a distinction between upward and downward volatility. In other words, the Sortino Ratio only counts the downward volatility as risk.

The Sortino Ratio was developed by Frank A. Sortino as an adjustment to the Sharpe Ratio. Sortino saw a major flaw in the Sharpe ratio as a risk-adjusted rate of return because it counted upside deviation as unfavorable. Sortino knew that investors value upside deviations and only see downside deviations as actual risk. The Sortino Ratio reflects this bias by only taking downside deviation into account.

The Sortino Ratio is calculated by dividing the difference between the expected rate of return and the risk free rate by the standard deviation of negative asset returns. The formula for the Sortino Ratio only differs from the Sharpe ratio in that it uses portfolio downside deviation instead of portfolio standard deviation as the denominator.



Rate this Sortino Ratio definition...

Learn about investing with the Investor Glossary Term of the Day


Click here for insightful stock market charts. Where is the market headed? The answer may surprise you. Find out
with the exclusive & Barron's recommended charts of Chart of the Day.


Popular Terms: 401a, real GDP, inflation, command economy, in escrow, cancelled check, ex-dividend, 1035 exchange, required rate of return, Key Rate Duration, stock market close, margin rate, average price per share, current ratio, deferred tax, Zero Cost Collar, stock split, EBITDA, implied volatility, LIBOR, balance sheet, risk management, FTSE, deferred revenue, per diem, labor relations, retained earnings, debt service coverage, phantom income, ex-dividend date, liquidity ratio, FICO score, 1031 exchange, annual return, option premium, covered put, 144a, wholly-owned subsidiary, irrevocable trust, APR, reverse mortgage, minority interest, open position, VIX, quality assurance, class C shares, dividends payable, limit order, diluted share


Accounting | Banking | Bonds | Brokers | Economy | Futures | Mutual Funds | Options | Real Estate | Retirement | Stocks | Taxes | Technical Analysis
Investor Glossary | Term of the Day | Suggest a Term | Chart of the Day | Dogs of the Dow
©2004-2016 Investor Glossary - All rights reserved - Terms of Use