Sortino ratio
The same idea as Sharpe, but counting only the dispersion below the mean.
In the demo portfolio
0.57
How it is computed here
Excess return divided by the semi-deviation — the spread of returns that fell below the average, measured against the mean of the whole series and divided by all observations, not just the bad ones.
Worked example
- Like Sharpe, but dividing by the volatility of the down days only.
- The up days are not counted as risk, so it comes out higher: 0.57 against a Sharpe of 0.41.
Demo portfolio: four invented companies, generated prices, measured by the real engine. Past returns do not predict future ones.
Where it misleads
Two books use two conventions for that denominator and the numbers are not comparable across them. Sortino well above Sharpe means much of your volatility is upside.