Glossary term
Sortino Ratio
A risk-adjusted return measure like the Sharpe Ratio but penalizing only downside volatility; rewards strategies that avoid losses.
The Sortino Ratio is a risk-adjusted return measure that, unlike the Sharpe Ratio, divides excess return only by downside deviation rather than total volatility. This rewards strategies that avoid losses while not penalizing upside variability, which the Sharpe Ratio treats as risk. It is the more appropriate measure for asymmetric strategies like premium selling, where upside and downside volatility are not equivalent. See Sharpe Ratio and Reference Portfolio 101.