What Is the Sharpe Ratio? Definition and Example
The Sharpe ratio tells you how much return you earned for each unit of volatility. Here is the formula, what counts as a good number, and what the S&P 500’s has been.
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What Is the Sortino Ratio? Definition and Example
The Sortino ratio is the Sharpe ratio with one fix: it only counts downside swings as risk. Here is the formula, what a good number looks like, and when it beats Sharpe.
Key takeaways
- The Sortino ratio is return above a target (usually the risk‑free rate) divided by downside deviation, the volatility of losing periods only. The S&P 500’s 10‑year Sortino ratio to Sep 30, 2026 was 1.37.
- Because it ignores upside swings, a Sortino ratio is usually higher than the Sharpe ratio for the same asset.
- There is no official “good” level. Compare it with the S&P 500 index over the same window.
- Two portfolios with the same Sharpe ratio can have different Sortino ratios. The higher one lost less on its bad months.
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What is the Sortino ratio?
The Sortino ratio measures return per unit of downside risk. It works like the Sharpe ratio, but the bottom of the fraction is downside deviation: the volatility of returns that fall below a target. Gains, however wild, are not counted as risk.
Sortino ratio = (portfolio return − target return) ÷ downside deviation
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Sortino vs Sharpe ratio: which matters?
Both matter, and they answer slightly different questions. Sharpe asks how bumpy the ride was. Sortino asks how painful the drops were. For investors who mostly fear losses, Sortino is closer to how risk feels. Sharpe is the more common standard, so quote both.
Worked example: the S&P 500 and two factor funds
In Exent’s data, as of Sep 30, 2026:
| Fund and window | Sharpe | Sortino |
|---|---|---|
| SPY, 1 year | 0.97 | 2.34 |
| SPY, 5 years | 0.69 | 1.10 |
| SPY, 10 years | 0.86 | 1.37 |
| Momentum (MTUM), Jul 2016–Sep 2026 | 0.81 | 1.36 |
| Quality (QUAL), Jul 2016–Sep 2026 | 0.81 | 1.25 |
The momentum and quality funds tie on Sharpe. Momentum’s higher Sortino says more of its volatility came from gains, not losses. See the momentum strategy page for the full backtest.
What is a good Sortino ratio?
A Sortino ratio above the S&P 500’s over the same period is a reasonable bar: about 1.1 to 1.4 for the 5‑ and 10‑year windows above. Many practitioners treat 2 or more as strong, but short windows inflate it, as SPY’s 2.34 over one calm year shows.
Common mistakes
- Comparing a Sortino ratio with someone else’s Sharpe ratio.
- Using a short history with few down months, which makes downside deviation tiny and the ratio huge.
- Forgetting the target. A 0% target and a T‑bill target give different answers.
For context on how big drops get, see max drawdown.
See your portfolio’s Sortino ratio with Exent
- Upload a screenshot of your holdings, or a CSV, Excel, PDF or Google Sheet; no brokerage login.
- Portfolio Analysis reports your Sharpe, Sortino and Calmar ratios next to a risk‑matched benchmark.
Frequently asked questions
Because the Sortino ratio only counts losing periods as risk. If much of your volatility came from gains, the downside deviation is smaller than the full standard deviation.
In Exent’s data, SPY’s Sortino ratio was 1.37 over the 10 years and 1.10 over the 5 years to Sep 30, 2026.
Over several years, yes. Over one year it can simply reflect a calm market with few down months.
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Educational content, not investment advice. Examples are illustrative; past performance does not guarantee future results.