Sortino Ratio Calculator

Sortino ratio measures risk-adjusted return using downside volatility only - improvement over Sharpe ratio (which penalises both up and down volatility). 12% return with 4% target and 8% downside deviation = Sortino 1.0. Better captures asymmetric strategies (options selling, momentum) where upside vol is desirable.

Example: portfolio returns 12% annually. Minimum acceptable return (target) 4%. Downside deviation (semi-deviation of returns below target) 8%. Sortino = (12 - 4) / 8 = 1.0. Solid risk-adjusted performance focused on downside risk only. Same portfolio Sharpe might be 0.5 (using full volatility) - Sortino almost always higher than Sharpe.

When Sortino beats Sharpe: (1) Asymmetric strategies (options selling, momentum, trend-following) where upside volatility is captured but downside avoided. (2) Long-only equity strategies. (3) Real estate (illiquid but rarely down dramatically). Sortino limitations: harder to calculate (need downside deviation), less standardised than Sharpe. For most portfolios: similar conclusions to Sharpe but Sortino slightly more accurate measurement of bad volatility.

A worked example

Try the defaults: portfolio annual return of 12%, target/min acceptable return of 4%, downside deviation of 8%. The tool returns 1.00. You can adjust any input and the result updates as you type — no submit button, no reload. That's the real power here: seeing how sensitive the output is to one or two assumptions.

What moves the number most

The result responds to Portfolio Annual Return %, Target/Min Acceptable Return %, and Downside Deviation %. Not every input has equal weight. Adjusting one input at a time toward extreme values shows which ones move the result most.

The formula behind this

Sortino = (return - target) / downside deviation. Penalises only downside vol. Everything the calculator does is shown in the formula box below, so you can check the math against your own spreadsheet if you want.

Where this fits in planning

This is a "what-if" tool, not a forecast. Use it to test ideas before committing: what happens if the rate is 2% lower than hoped, what happens if you add five more years. The value is in the scenarios you run, not the single answer you get from the defaults.

What this doesn't capture

Steady-rate math ignores real-world volatility. Actual returns are lumpy; sequence-of-returns risk matters most in drawdown; fees and taxes drag on compound growth; and behaviour changes in drawdowns can reduce outcomes below the projection. The number represents one scenario rather than a forecast.