The Sortino Ratio is an analog to the Sharpe Ratio, with the standard deviation replaced by the downside deviation. Accordingly, there are two versions: one uses the downside deviation with constant MAR, the other uses the downside deviation with cash as the MAR.

SortinoRatioConstantMAR = (AnnRtn(r₁, …, r_n) – c)/DownsideDeviationConstantMAR(r₁, …, r_n)

    where:

        r₁, …, r_n = manager return series
        c = annualized constant MAR

SortinoRatioCashMAR = (AnnRtn(r₁, …, r_n) – AnnRtn(c₁, …, c_n))/DownsideDeviationCashMAR(r₁, …, r_n)

    where:

        r₁, …, r_n = manager return series
        c₁, …, c_n = cash equivalent return series

To view our quick tip video on the Sortino Ratio, click the following link:  http://www.styleadvisor.com/sites/default/files/quick_tip_video/sortino_....