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Sortino Ratio from Return & Downside Deviation

Compare two Sortino ratios using average returns, a shared target return and precomputed downside deviations.

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Calculator inputs

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How to use this calculator

  1. Enter the known values in the units shown. Results update as you type.
  2. Where results are editable, change one to solve backwards. Lock a value to hold it fixed.
  3. Use the worked example to check the method. Reset restores the starting fields.

Use the result with context

Results are estimates for planning and education. Confirm rates, taxes, fees, and legal requirements with the relevant institution or a qualified professional before making a financial decision.

Formula and method

An average return of 8%, target return of 2% and downside deviation entered as 0.04 (4%) give a Sortino ratio of 1.5.

Sortino ratio = (average return − target return) / downside deviation

Worked example

Enter these known values and leave the other values blank.

Shared target return (risk-free rate if chosen)
2 %
Asset 1 average return
8 %
Asset 1 downside deviation (0.04 = 4%)
.04
Asset 1 Sortino ratio
1.5

Assumptions and limitations

  • Average and target return fields use percentage selectors. Downside-deviation fields use decimal fractions: enter 0.04 for 4%, not 4.
  • Supply a strictly positive, already calculated downside deviation around the same chosen target. This tool does not estimate deviation from a return series.
  • Use the same return frequency, observation period, target, downside-deviation convention and annualization basis for both assets.
  • Ratios may be zero or negative. Numerical bands do not establish whether an investment is suitable or predict its future performance.

Common questions

Is downside deviation ordinary standard deviation?

No. It measures shortfalls below the selected target under a specified convention. Ordinary standard deviation includes deviations on both sides.

Does the target have to be a risk-free return?

No. A chosen minimum acceptable return is also a possible target. The downside-deviation calculation must use that same target.

References

Bookify compares Sortino bands and the two ratios using exact signed differences rather than tolerant equality around thresholds.

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