Sortino Ratio

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Sortino Ratio

A variation on the Sharpe ratio that measures the risk-adjusted return on an investment. The Sortino ratio considers the possibility that an investment will fall below the required rate of return, rather than volatility in general. It is calculated as follows:

Sortino Ratio = (Realized return - Required return) / Downside risk.
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These same 14 emerging countries also reported higher Sortino ratios than the EAFEC index.
In 14 of the 20 emerging countries, the Sortino ratios are higher during restrictive environments, relative to expansive environments.
Latin American markets are particularly impressive as a diversifier, offering higher Sharpe and Sortino ratios and lower correlations than that available from an EAFEC or emerging Asian market investment.
As an additional measure of emerging market investment performance, we also report the Sortino ratio in Table 3, specified as the difference between the mean portfolio return (R) and target return (T) divided by the downside deviation:
Furthermore, the Sortino ratio for the equally-weighted emerging index is more than twice that available from developed market indices.
So I look at opportunities with a vigilant eye on downside risk measures, like Sortino Ratios and correlation, focusing on the likelihood that different asset classes will head south at the same time (as they did in 2008).
Note that for most funds, Sortino ratios are unavailable since returns did extremely rarely or not at all drop below the threshold, that is, the risk-free rate.
One of these measures is the Sortino ratio (see Sortino and Van Der Meer, 1991), which employs the lower partial moment of order 2 (LPM2) instead of the standard deviation, that is,
Where were the financial experts who should have been asking questions that probed beyond the simple Sharpe and Sortino ratios, both of which understate the risk of their respective return streams because they don't adequately capture gap risk?
I no longer have to spend hours computing Sharpe and Sortino ratios.