Sortino represents the excess return earned for the extra volatility we endure for holding a riskier asset, in other words it is the excess returns earned per unit of risk but here risk is defined as downside deviation instead of standard deviation.

The difference, Standard deviation considers both upside and downside deviation but the downside deviation ignores upside deviation. Sortino is considered superior to sharpe in the sense that investors are more concerned with downside risk instead of total risk.


Formula = Return / Downside deviation.


The metric considers both risk and return and is better for evaluating funds as compared to considering risk & return individually. Higher the Sortino better the risk adjusted performance.