Understanding Sortino Ratio

Ratin Biswass / 07 Aug 2025/ Categories: DSIJ_Magazine_Web, DSIJMagazine_App, Letters to Editor, MF - Letter to Editor, Mutual Fund

I came across the term ‘Sortino’ in the context of risk-adjusted return metrics

I came across the term ‘Sortino’ in the context of risk-adjusted return metrics in the last mutual fund story. Could you please explain it in simple terms? - Bhavesh P[EasyDNNnews:PaidContentStart]

Editor Responds : The ‘Sortino Ratio’ is a risk-adjusted return metric used to evaluate how well an investment performs relative to the downside risk it carries. Unlike the Sharpe Ratio, which considers both upside and downside volatility, the Sortino Ratio focuses only on downside deviation, meaning the negative returns that investors actually worry about.

This makes it a more accurate measure of ‘bad’ risk. A higher Sortino Ratio indicates that an investment is generating better returns for each unit of downside risk. In the context of mutual funds, it helps investors compare funds with similar returns but different levels of downside volatility. It is especially useful when selecting actively managed funds where minimizing losses is as important as maximizing gains.

[EasyDNNnews:PaidContentEnd] [EasyDNNnews:UnPaidContentStart]

To read the entire article, you must be a DSIJ magazine subscriber.

[EasyDNNnews:UnPaidContentEnd]