Return/risk ratio. The concept and the formula is the same as in the Sharpe ratio. The only difference is that it is calculated using standard deviation of negative returns only as σ – returns below a minimum acceptable return (we use 0% by default).
The Sortino Ratio can be calculated on a daily/monthly/quarterly basis.
The Sortino Ratio can be calculated using 3 different values for the MAR:
- a MAR defined by someone
- the Sharpe ratio risk free rate
- zero (default).