Knowledge center · Validation & statistics
Sortino Ratio
Like Sharpe, but only penalizes downside volatility, not upside swings.
Formula
Sortino = mean(daily return) / std(negative daily returns) × √252
Interpretation
A strategy with big up days and small down days can have a mediocre Sharpe (both count as "risk") but a strong Sortino, since only the down days count against it.
What good looks like
Above 1.5 is good; a Sortino meaningfully higher than the Sharpe for the same strategy indicates upside-skewed returns, which is a desirable shape.
What bad looks like
A Sortino close to or below the Sharpe for the same series suggests the volatility is not particularly upside-skewed.
Typical range
0.4–1.8 for most single-name strategies; direct comparison to Sharpe is more informative than the absolute number.
How OmniSignal uses it
Investors generally don't mind volatility that comes from gains — Sortino isolates the risk that actually matters (losses).
References
Sortino, F. & van der Meer, R. (1991), "Downside Risk," Journal of Portfolio Management
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