What is Sortino Ratio?
The Sortino ratio improves on the Sharpe ratio by only penalizing downside volatility — recognizing that upside volatility is actually good for investors.
Formula
Sortino Ratio = (Portfolio Return - Risk-Free Rate) ÷ Downside Deviation
How to Interpret
Higher is better. More useful than Sharpe for portfolios with asymmetric return distributions (options, venture, crypto).
Typical Ranges
Above 1.5 is good, above 2.0 is very good.