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The Sortino ratio measures the risk-adjusted return of an investment asset, portfolio, or strategy. [1] It is a modification of the Sharpe ratio but penalizes only those returns falling below a user-specified target or required rate of return , while the Sharpe ratio penalizes both upside and downside volatility equally.
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Sortino and Steven Satchell at Cambridge University co-authored the first book on PMPT. This was intended as a graduate seminar text in portfolio management. A more recent book by Sortino was written for practitioners. The first publication in a major journal was co-authored by Sortino and Dr. Robert van der Meer, then at Shell Oil Netherlands.
The upside-potential ratio is a measure of a return of an investment asset relative to the minimal acceptable return. The measurement allows a firm or individual to choose investments which have had relatively good upside performance, per unit of downside risk .
The CAPM, however, includes both halves of a distribution in its calculation of risk. Because of this it has been argued that it is crucial to not simply rely upon the CAPM, but rather to distinguish between the downside risk, which is the risk concerning the extent of losses, and upside risk, or risk concerning the extent of gains.
Your debt-to-income ratio (DTI) is your total monthly debt payments divided by your total gross monthly income. It helps lenders determine your approval odds and the likelihood of you being able ...
For example, what does it mean if one investment has a Sharpe ratio of 0.50 and another has a Sharpe ratio of −0.50? How much worse was the second portfolio than the first? These downsides apply to all risk-adjusted return measures that are ratios (e.g., Sortino ratio, Treynor ratio, upside-potential ratio, etc.).
In this posting titled, “Sortino ratio”, Rom states: “The Sortino ratio was created in 1993 by Brian Rom.” The fact is: At the direction of Dr. Sortino, Dr. Forsey wrote the source code to calculate the Sortino ratio for the PRI software Rom was marketing long before Rom’s 1993 article.