Unlike the Sharpe ratio and the Treynor ratio, which are both risk-adjusted ratios, the Sortino ratio is based on the concept of the minimum acceptable return (MAR) for a particular investment and thus focuses on Downside risk.
The ratio represents the fund manager's ability to generate excess return compared to risk-free investments, given the loss profile entered.
From an analytical viewpoint, it is the ratio between the difference between a portfolio’s return and a risk-free investment and the downside risk.
A high ratio value indicates that the variability of the returns is (mostly) not concentrated below the MAR.
The Sortino ratio was named after the economist Frank A. Sortino.
Publish your profile for free
Fill in your information completely for a higher chance
of being contacted by our readers