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The Sortino ratio measures the risk-adjusted return of an investment asset, portfolio, or strategy. [1] It is a modification of the Sharpe ratio but penalizes only those returns falling below a user-specified target or required rate of return , while the Sharpe ratio penalizes both upside and downside volatility equally.
The following table shows that this ratio is demonstrably superior to the traditional Sharpe ratio as a means for ranking investment results. The table shows risk-adjusted ratios for several major indexes using both Sortino and Sharpe ratios. The data cover the five years 1992-1996 and are based on monthly total returns.
The measure was developed by Frank A. Sortino. Discussion. The upside-potential ratio is a measure of risk-adjusted returns. All such measures are dependent on some measure of risk. In practice, standard deviation is often used, perhaps because it is mathematically easy to manipulate. However, standard deviation treats deviations above the mean ...
Roy's ratio is also related to the Sortino ratio, which also uses MAR in the numerator, but uses a different standard deviation (semi/downside deviation) in the denominator. In 1966, William F. Sharpe developed what is now known as the Sharpe ratio. [1]
For example, what does it mean if one investment has a Sharpe ratio of 0.50 and another has a Sharpe ratio of −0.50? How much worse was the second portfolio than the first? These downsides apply to all risk-adjusted return measures that are ratios (e.g., Sortino ratio, Treynor ratio, upside-potential ratio, etc.).
Unlike the reward-to-variability ratios, such as Sharpe ratio and Sortino ratio, the Rachev ratio is a reward-to-risk ratio, which is designed to measure the right tail reward potential relative to the left tail risk in a non-Gaussian setting.
Upside potential ratio; Upside risk; Downside risk; Sortino ratio; Omega ratio; Bias ratio; Information ratio. Active return; Active risk; Deviation risk measure; Distortion risk measure; Spectral risk measure; Optimization models Black–Litterman model; Universal portfolio algorithm; Resampled efficient frontier
Sortino ratio; Sterling ratio; Treynor ratio; Upside potential ratio; V2 ratio This page was last edited on 30 May 2023, at 13:14 (UTC). Text is available under ...