Sortino ratio
By Jude Wallis
The Sortino ratio divides return above a stated target by downside deviation, the spread of results below that target. Upside variation is not treated as risk.
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It exists because of a complaint about the Sharpe ratio: standard deviation punishes a strong month exactly as hard as a weak one. An investor does not experience those symmetrically, so Sortino keeps the same shape and swaps the denominator for a one-sided measure.
The target is a choice, not a constant. Zero, the risk-free rate, or a minimum acceptable return all produce different Sortino ratios for the same track record, so two ratios are only comparable when the target and the period match.
With few observations below the target, the denominator rests on a handful of months and the ratio moves sharply as one more is added. The Sortino ratio calculator is the division, how the Sharpe ratio works is the two-sided version, and risk and return is the wider picture.