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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.
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 .
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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 ...
Portfolio optimization is the process of selecting an optimal portfolio (asset distribution), out of a set of considered portfolios, according to some objective.The objective typically maximizes factors such as expected return, and minimizes costs like financial risk, resulting in a multi-objective optimization problem.
The t-statistic will equal the Sharpe Ratio times the square root of T (the number of returns used for the calculation). The ex-post Sharpe ratio uses the same equation as the one above but with realized returns of the asset and benchmark rather than expected returns; see the second example below.
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.