Home / Glossary / Sortino Ratio
FinanceSortino Ratio
By Sitraka Forler · Lecturer, Durham Business SchoolUpdated 13 September 2026 About this site
Like Sharpe, but penalises only downside volatility.
The Sortino ratio divides excess return by downside deviation, so it doesn't punish a strategy for large upside swings. It better reflects how investors actually feel about risk - they fear losses, not gains.
Formula / theory
Sortino = (R_p − R_f) / σ_downside σ_downside = sqrt( mean( min(R − target, 0)² ) ) (over ALL periods, target usually 0 or R_f)
In Python
import numpy as np # Downside deviation: root-mean-square of shortfalls below the target, # averaged over ALL periods (not the std of only the negative returns). target = 0.0 downside = np.sqrt(np.mean(np.minimum(returns - target, 0.0) ** 2)) sortino = (returns.mean()*252 - rf) / (downside*np.sqrt(252))