Sortino ratio

Sortino ratio improves on the Sharpe ratio by replacing total return standard deviation with downside deviation — the standard deviation of returns that fall below a target (usually zero or the risk-free rate): Sortino = mean(r - target) / downside_std(r) x sqrt(periods).

The key insight: upside volatility is not risk. A strategy that occasionally makes 10% in a single day looks volatile by Sharpe's measure, but that upside swing should not be penalized. Sortino ignores it, so strategies with positively skewed return distributions (large winners, small losers) score better on Sortino than on Sharpe.

Interpretation. A Sortino above 2.0 is generally considered strong for a crypto strategy, though thresholds vary with market conditions and leverage. Always evaluate out-of-sample; overfitting can inflate Sortino just as easily as Sharpe.

Use the Sharpe ratio calculator — it also computes Sortino — to benchmark your own backtest results. Research output only — this is not investment advice.