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Sortino Ratio of an Asset

by QuantShare, 2702 days ago
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The Sortino ratio is a popular measure of the risk of an asset, investment, portfolio or strategy. Its formula resembles the one that describes the Sharpe ratio with a small variation that consists of penalizing only negative returns.

Sortino ratio uses the downside standard deviation instead of the classic standard deviation. The downside deviation, also called downside risk, treats positive and negative deviations differently unlike the standard deviation. The formula is calculated only based on returns that are lower than the mean and thus it takes into account only negative deviations because it is the main concern of traders and investors.


The Sortino ratio of a strategy is automatically calculated in the simulation report when you backtest a trading system.

The current indicator was created to measure the risk of a single asset (daily period). It may also be applied to indices and composites.

This trading indicator has two parameters. The first one allows you to specify a time-series (The close price is generally used). The second parameter determines the lookback period or the number of past bars to use in the calculation.

Example:
a = sortino(close, 90);

The Sharpe ratio function is already included in QuantShare. Here is how to calculate the 90-bar Sharpe ratio of a security:
a = sharpe(close, 90);


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Type: Trading Indicator

Object ID: 1146


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Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.