The Sortino ratio measures how much return you get for the downsides. It only counts the moves that lose you money, because nobody's ever been upset about a sharp move in their favour, right? Higher Sortino means more reward for the pain you actually feel. Most healthy systems land between 1 and 2 on a per trade basis.
What does it measure?
It divides your return by your downside deviation. Sharpe uses total volatility, so it treats a big winning week as risk... which is a strange thing to punish. For anything with a fat right tail, a trend system that bleeds small and pops big, Sortino gives the fairer read than other metrics.
Sortino or Sharpe?
Use Sortino when your returns are asymmetrical, which most real strategies are. Use Sharpe when you want to talk to the wider industry, since it's the number everyone already knows. A momentum system can post a mediocre Sharpe and a strong Sortino at once, and the Sortino is the honest one. Neither means much on a tiny sample, so don't read either off 25 trades and call it done.
What is a good Sortino?
Per trade, above 1 is solid and above 2 is strong. Be suspicious of anything much higher on a short record. Annualised figures look bigger and follow different rules, so a Sortino of 2 per trade isn't the same as a Sortino of 2 for the year. Check which one you're looking at before comparing two systems, or you'll be lining up two numbers that were never the same thing, and this is important.
Frequently asked questions
References
Related terms
- Maximum Drawdown — The deepest hole a strategy has dug you into, peak to bottom.
- Health Score — A 0-100 combined score that shows whether a live strategy’s edge is still holding or quietly decaying over time.
- Edge Score — A 0 to 100 score that grades how real and how strong a trading strategy's edge is on its backtest.
- Stability Score — A 0-100 combined score that measures how closely a live trading strategy follows the edge from backtesting.