The Sharpe Ratio is a measure of the risk-adjusted return of an investment.
where r is the average monthly return, rrf is the risk-free return (we use 0% per year* as a risk-free return) and σ is the standard deviation of the monthly returns over the same period.
For annualized Sharpe Ratio we take the monthly sharpe ratio and multiply it by the square root of 12.
The Sortino Ratio can be calculated on a daily/monthly/quarterly basis, or for different periods: 3,6 months or 1 – 10 years.
It’s also possible to calculate the statistics using the following rates: U.S. 3 Month Treasury Bill, U.S. 1 Year Treasury Bill, U.S. Treasury Yield 10 Years, U.S. Treasury Yield 30 Years.
* 0% risk-free rate of return is used for all time periods by default.