Sortino Ratio — what it is and how to use it in trading
Definition
The Sortino ratio is a risk-adjusted return metric similar to the Sharpe ratio, but its denominator counts only downside volatility, not the spread of returns in both directions.
How it works in the builder
Upside swings in returns aren't treated as risk and don't lower the Sortino value, unlike Sharpe, which penalizes any volatility equally. The higher the Sortino ratio, the less downside risk a strategy takes on per unit of return.
Typical use
Useful alongside Sharpe for strategies with an asymmetric result profile — for example, rare large winning trades on an otherwise smooth equity curve: such a strategy can have a noticeably higher Sortino than Sharpe value.
Common pitfalls
Over short periods or with few losing trades, the downside-volatility estimate is statistically noisy — the Sortino value can shift a lot when just one or two trades are added to the sample.
This block is available in the strategy builder
137 no-code blocks — build an entry condition with this term and test it on history
Historical results do not guarantee future ones. The service is an informational and analytical tool, not an individual investment recommendation; trades are not executed.