Observed target-downside variability

Sortino Ratio Calculator

Compare the arithmetic mean return above one entered per-period target with target downside deviation from equal-frequency returns. The result is a descriptive sample ratio, not a strategy grade or future-performance forecast.

Entered periodic returnsExplicit targetNo rating bands

Enter one equal-frequency sample

Every row and the minimum acceptable return must use the same period and percentage definition.

Entered

One simple percentage return per line. Enter 2 for 2%, not 0.02.

Enter the minimum acceptable return already aligned with the sample frequency.

For example 12 monthly or 252 trading-day observations.

Downside convention: Squared shortfalls use every entered observation in the denominator; rows at or above target contribute zero. The page does not choose the target.

Observed target-downside ratio

Observed Target Downside Ratio 1.0.0.

Derived
Enter the periodic sampleMean target excess, downside deviation and the ratio will appear here.
Need full-sample variability?Use a per-period benchmark and sample standard deviation in the Sharpe tool.
Sharpe Ratio

How the observed Sortino ratio is calculated

Differenceᵢ = Returnᵢ − Entered target per period
Downside deviation = √Mean[min(Differenceᵢ, 0)²]
Entered-frequency Sortino = Mean difference / Downside deviation
Annualized Sortino = Entered-frequency Sortino × √Periods per year

The lower-partial-moment denominator includes all entered observations. Full precision is retained until display.

Assumptions and limits

  • Returns must be aligned, equally spaced and calculated consistently.
  • The target must already be expressed for the same period; the page performs no rate conversion.
  • Different downside-deviation conventions can produce different ratios.
  • Square-root annualization, sample selection, changing conditions, costs and data errors remain material limitations.
  • No ratio is a verified edge, quality grade, forecast or recommendation.

Worked example from the audited fixture

Enter five periodic returns of 2%, −1%, 3%, 0% and 1%, a 0% target per period, and 12 periods per year. Mean target excess is 1.0000%, while only the −1% row contributes a non-zero shortfall.

Downside deviation = √[(0² + (−1%)² + 0² + 0² + 0²) ÷ 5] = 0.447214%
Entered-frequency Sortino = 1.0000% ÷ 0.447214% = 2.236068
Annualized Sortino = 2.236068 × √12 = 7.745967

How to interpret the result

All five rows remain in this target-semideviation denominator, even though four contribute zero shortfall. That convention differs from Sharpe’s full-sample standard deviation and from Sortino implementations that divide only by below-target rows. The output describes this fixture; it is not a quality grade or forecast.

Frequently asked questions

  • It compares the entered sample’s arithmetic mean return above a target with target downside deviation.
  • It is the minimum acceptable per-period return you enter for the comparison. The page does not select it.
  • The model squares only shortfalls below target, assigns zero to other rows, averages across all entered observations and takes the square root.
  • Mixing frequencies makes the mean, target, downside deviation and annualization inconsistent.
  • A negative result means the entered arithmetic mean return is below the entered target for that sample.
  • No below-target observation means the downside-deviation denominator is zero, so the ratio is undefined.
  • Sharpe uses full sample standard deviation around mean excess return. This Sortino contract uses only squared shortfalls below an entered target.
  • No. It describes the entered sample under one explicit convention and does not establish future persistence.

Sources and methodology

Sharpe RatioMeasure benchmark excess against full sample variability.Profit FactorCompare gross positive and gross negative realized outcomes.Drawdown DurationInspect observed below-peak episodes in an equity series.

Verify return records and charges

Confirm valuation times, deposits, withdrawals and costs before deriving periodic returns.

XM

Check statement timing and applicable account charges.

Check XM terms

FBS

Confirm the account records behind each periodic return.

Check FBS terms

FXOpen

Review transaction and financing charges before building the series.

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Disclaimer: The results from this tool are estimates for educational and informational purposes only and may differ from your broker's figures. This is not financial or investment advice. Trading forex and CFDs carries a high level of risk and can result in the loss of all your capital. Always verify calculations with your broker and trade within your risk tolerance.