Sortino Ratio Calculator
The Sortino Ratio Calculator helps finance professionals evaluate the risk-adjusted return of an investment by considering only the downside risk. This tool is crucial for investors focusing on minimizing risk while maximizing returns.
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Data Source and Methodology
All calculations are based on the standard Sortino Ratio formula and utilize generic market data for inputs. Please refer to Investopedia for further details. All calculations strictly adhere to the provided data and formulas.
The Formula Explained
Sortino Ratio: \( \text{Sortino Ratio} = \frac{\text{Expected Return} - \text{Risk-Free Rate}}{\text{Downside Deviation}} \)
Glossary of Terms
- Expected Return: The anticipated return on an investment.
- Risk-Free Rate: The return on an investment with zero risk, typically government bonds.
- Downside Deviation: The standard deviation of negative asset returns, measuring downside risk.
- Sortino Ratio: A measure of risk-adjusted return considering only downside risk.
Frequently Asked Questions (FAQ)
What is the Sortino Ratio?
The Sortino Ratio is a financial metric that evaluates the risk-adjusted performance of an investment by considering only downside volatility.
How is the Sortino Ratio different from the Sharpe Ratio?
The Sortino Ratio differs from the Sharpe Ratio by focusing only on downside risk, making it more relevant for investors concerned with downward fluctuations.
Why is the Risk-Free Rate important?
The Risk-Free Rate represents the return on riskless investments, serving as a benchmark for evaluating other investments.
How do you interpret the Sortino Ratio?
A higher Sortino Ratio indicates better risk-adjusted returns, considering only downside risk.
What is a good Sortino Ratio?
A Sortino Ratio above 1.0 is generally considered favorable, indicating good risk-adjusted returns.