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What does the Sortino Ratio mean?



The Sortino ratio is a variation of the Sharpe ratio that is used to measure the risk-adjusted return of a portfolio or investment strategy.


Like the Sharpe Ratio, it compares the return of an investment to that of a risk-free asset, but it adjusts for the downside volatility of the investment.


A higher Sortino Ratio indicates a better risk-adjusted performance, as it indicates that the investment has generated higher returns for a given level of downside risk. However, as with the Sharpe Ratio, it is difficult to give a specific "good" ratio as it will depend on the investors' objectives and risk appetite.


The Sortino ratio is useful for investors who are more concerned with avoiding large losses than maximising overall returns, as it emphasises the downside risk rather than total risk.


It can also be useful for investors looking for investments with a low probability of large losses. For instance, investors nearing retirement age.

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