Sortino Ratio
A variation of the Sharpe ratio that only counts downside swings as risk.
In plain English
A variation of the Sharpe ratio that only counts downside swings as risk.
The Sortino ratio works like the Sharpe ratio with one tweak. Sharpe penalises all volatility, including big upward jumps. Sortino only penalises the bad kind: returns that fall below a target. After all, nobody complains when their account jumps up.
That makes it a fairer score for strategies with lumpy upside, like trend following, which may have long quiet stretches and occasional big wins. Higher is better.
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