Glossary
Sortino Ratio
A risk-adjusted return metric that uses only downside volatility instead of total volatility.
The Sortino ratio is similar to the Sharpe ratio, but it divides excess return by downside deviation. This makes it more suitable for strategies with asymmetric returns that have large upside moves.
Key Points
- Only penalizes harmful downside volatility.
- Higher values indicate better downside-adjusted performance.
- Popular for trend following and options strategies.