The downside standard deviation, also referred to as downside risk, differs from the ordinary standard deviation insofar as the sum is restricted to those returns that are less than the mean:

DownsideStdDev(r₁, ..., r_n) =

where is the mean of r₁, ..., r_n. To annualize the downside standard deviation, one multiplies by the square root of the number of periods in a year, just as in the case of the ordinary standard deviation.