Question 1

How is the Sortino ratio different from the Sharpe ratio?

Accepted Answer

Sharpe divides excess return by total volatility, punishing big up-moves as if they were risk. Sortino divides only by downside deviation — the volatility of losses — so a strategy that jumps higher is not penalised for it. For asymmetric, trend-following or crypto returns, Sortino is often the more honest measure.

Question 2

What is a good Sortino ratio?

Accepted Answer

As a rough guide, above 1 is good, above 2 is very good and above 3 is excellent. A negative Sortino means you would have been better off in the risk-free asset. Compare ratios only over the same period and asset class — they are relative, not absolute, scores.

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