Sortino Ratio Calculator
Written by Thierno Sadou Diallo, formula verified per our methodology • Last checked on 10/11/2026
The Sortino ratio is calculated with (portfolio return − minimum acceptable return) ÷ downside deviation. For a 14% return, a 5% threshold, and a 6% downside deviation, the Sortino ratio is 1.5.
Explanation
The Sortino ratio measures a portfolio's return relative to its risk, like our already-published Sharpe ratio calculator, but correcting a recognized limitation of the latter: the Sharpe ratio uses the standard deviation of all returns, which penalizes an unexpectedly large gain the same way as an unexpectedly large loss, even though only the latter represents a real risk to the investor. The Sortino ratio only keeps the "downside deviation," a standard deviation calculated solely on returns below a reference threshold (the minimum acceptable return, or MAR), usually the risk-free rate or a performance target specific to the investor. A higher Sortino ratio indicates better return per unit of downside risk: according to a common interpretation benchmark, a ratio below 1 reflects weak risk-adjusted performance, while a ratio between 1 and 2 is considered acceptable. This calculator takes the downside deviation directly as an input, already calculated from a historical return series: computing it involves isolating returns below the chosen threshold, squaring each of these negative gaps, averaging them, then taking the square root of that average — a method that varies slightly from one source to another depending on whether the total number of periods or only the number of negative periods is used in the denominator of that average, a point to check before comparing two ratios calculated by different sources.
Example: a 14% return, 5% threshold, 6% downside deviation
Inputs
Portfolio return: 14%. Minimum acceptable return: 5%. Downside deviation: 6%.
Calculation
Sortino ratio = (14 − 5) ÷ 6 = 9 ÷ 6 = 1.5.
Result
This portfolio shows a Sortino ratio of 1.5, a downside risk-adjusted performance generally considered acceptable.
Frequently asked questions
Why prefer the Sortino ratio over the Sharpe ratio?
The Sortino ratio is generally preferred when the return distribution is skewed (for example, strategies that limit losses while still benefiting from gains), because the Sharpe ratio would wrongly penalize this favorable asymmetry by counting it as unwanted volatility. For returns close to a classic symmetric distribution, the two ratios generally give similar conclusions.
How is downside deviation calculated from a return series?
First identify the returns in the historical series that fall below the chosen minimum acceptable return, calculate each one's (negative) gap from that threshold, square each gap, average those squares, then take the square root of that average. Watch out: some methods divide that average by the total number of periods in the series, others only by the number of periods where the return was actually below the threshold — a choice that changes the final result and that you need to know before comparing two ratios.
What are the limitations of this ratio?
The Sortino ratio depends heavily on the chosen reference threshold (MAR), and needs a sufficient history of negative periods for the calculated downside deviation to be statistically reliable: with too few observed declines, the ratio can be artificially high. It also doesn't capture all the real risks of an investment, such as liquidity risk or the risk of a sudden, unexpected loss (credit risk, for example) — factors worth weighing against the opportunity cost of an alternative investment before any decision.