Sortino Ratio Calculator
The Sharpe ratio punishes big up moves as much as big down ones — but no one minds an upside surprise. The Sortino ratio fixes that: it divides your excess return by the volatility of the losing periods only, so it scores return against the risk you actually care about.
- • Sortino = (annual return − risk-free rate) ÷ downside deviation.
- • Downside deviation is the standard deviation of only the periods that fell below the target (here, cash).
- • Rough read: below 0 lost to cash · ~1 is good · ~2 very good · ~3+ is rare and worth double-checking.
Worked example: a 12% return, 4% risk-free rate and 10% downside deviation give (12 − 4) ÷ 10 = 0.80. Sortino is usually higher than the same strategy's Sharpe, because it ignores the upside swings Sharpe counts as risk.
Sortino still assumes the downside is well-behaved and rests on a limited sample, so a great backtest figure typically shrinks live — and a high ratio on few trades is mostly luck. Educational tool, not advice.
A calculator shows what a rule should do on paper. Whether a strategy actually beats simply buying and holding — costs on, losses shown, no hindsight — is a different question, and the only one that pays. Most rules don't beat holding; the backtest is how you find the rare few that do — so when you build one that survives, you'll know it isn't a fake edge, then prove it forward before you risk real money. It won't tell you you'll win — nothing honest can.