Sortino ratio

The Sortino ratio was created in 1983 by Brian M. Rom at the software development company Investment Technologies. The ratio is named for Frank A. Sortino, an early popularizer of downside risk optimization. It measures the risk-adjusted return of an investment asset, portfolio, or strategy. 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. Though both ratios measure an investment's risk-adjusted return, they do so in significantly different ways that will frequently lead to differing conclusions as to the true nature of the investment's return-generating efficiency.