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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When downside monthly deviations are isolated using Sortino Ratios, the comparisons are even more striking: 1.07, 0.68, and 0.55 for the MT Best for VETS Index, the Russell 3000, and the S&P 500, respectively.
MT Best for VETS Index Versus Benchmarks, Summary Statistics for December 31, 2012 through October 30, 2018 Thomson MT Best Reuters/ Equal- for VETS S-Network Weighted S&P Index ESG Index 500 Index Annualized Return (Percent) 19.29 13.97 12.70 Annual Standard Deviation 10.47 10.45 10.27 Sharpe Ratio 1.79 1.29 1.19 Downside Monthly Deviation 1.38 1.68 1.68 Sortino Ratio 1.07 0.65 0.60 Russell S&P 500 3000 Index Index Annualized Return (Percent) 11.69 13.92 Annual Standard Deviation 10.13 9.94 Sharpe Ratio 1.10 1.35 Downside Monthly Deviation 1.68 1.61 Sortino Ratio 0.55 0.68
The last set of columns provides the Sortino ratios, combining downside deviation and excess returns.
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.
Third, given the potential for non-normal return distributions, we provide an examination of emerging equity performance using measures that account for both symmetric return distributions (standard deviation and Sharpe ratio) and asymmetric return distributions (downside deviation and Sortino ratio).
To calculate the Sortino ratios, data on monthly returns were used, which were then converted to an annual level.
Tables 5 and 6 show the calculated Sortino ratios for "Emerging Market Funds".
Our investment professionals have developed a proprietary scoring system based on one-, three-, five- and 10-year performance; three-year alpha; three-year beta; three- and five-year Sortino ratios; three-year standard deviation; and net expense ratio rank.
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.
(32) Apart from the probably most classic performance measure in finance literature, the Sharpe ratio, we calculate the Sortino ratio, the Calmar ratio, and the excess return on value at risk (VaR) for the asset classes under consideration.
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?