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Sortino vs. Sharpe Ratios

 
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Last Post by Lowell Herr 3 years ago
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 Lowell Herr
(@lowell)
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Joined: 12 years ago
Posts: 688
Topic starter July 3, 2022 7:53 AM  

Why do I use or prefer the Sortino Ratio over the Sharpe Ratio?  Whereas Sharpe looks at both upside and downside volatility, Sortino only cares about the downside.  Why is it important to care only about the downside?

Think about it for a moment.  We cheer for our portfolios to move up so we are rooting for upside volatility and don't want to be penalized for such moves.  We only want to be penalized for downside volatility and that is exactly what the Sortino Ratio does.  Therefore, Sortino is much preferred over the Sharpe Ratio.

While the Sharpe Ratio is ingrained in the minds of investors, it is time to think a bit deeper and when one does, the Sortino Ratio wins out.

Lowell

 



   
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