Sortino ratio in mutual fund performance

Mon, 18 May 2026 00:00:00 +0000

The Sortino ratio is a risk-adjusted return measure that computes excess return per unit of downside deviation (volatility of negative returns only), rather than total volatility as in the Sharpe ratio . The Sortino ratio is more intuitive for most investors because it penalises only “bad” volatility (drawdowns) and not “good” volatility (upside).

Formula

Sortino ratio = (Scheme return - Risk-free return) / Downside deviation

Where:

Downside deviation: Standard deviation of only negative returns (or returns below a target threshold).

The downside deviation captures only the “loss volatility”, aligning with investor intuition that risk = potential loss.

Sortino ratio in mutual funds

Tue, 12 May 2026 00:00:00 +0000

The Sortino ratio is a risk-adjusted performance measure that refines the Sharpe ratio by substituting total standard deviation with downside deviation, a measure computed only from returns that fall below a minimum acceptable return (MAR), typically the risk-free rate or zero. The intuition is straightforward: investors are harmed by downside volatility but benefit from upside volatility, so penalising both equally (as the Sharpe ratio does) misrepresents the true cost of risk.

Sortino Ratio on WebNotes

Sortino ratio in mutual fund performance

Formula

Sortino ratio in mutual funds