Sortino Ratio Example

Eastern Shore of Virginia

If you have been keeping up with the Comments you read Robert Ryan’s desire to include a risk measurement for a portfolio.  This blog is designed to show you how this can be accomplished if you have a portfolio tracking program such as the Investment Account Manager (IAM).  In a later blog post I’ll take a poor performing portfolio (the Franklin is an example) and work through the Sortino Ratio and show it as an additional tab you can add to the Kipling workbook or spreadsheet.

The following example is one I pulled off the Internet.  I simplified the following table and eliminated the Sharpe Ratio calculation.  We are not interested in penalizing risk to the upside.  We desire upside volatility and that is the beauty of the Sortino Ratio calculation.  Here is the very important link that walks readers through the Sortino Ratio calculation.

Sortino Ratio Example Calculation

What you see below is my transferring what you see in the Sortino video into an Excel spreadsheet.  When I complete the Sortino Ratio calculations for the Franklin, I can send interested readers the spreadsheet.

When calculating the return for a particular period, I plan to do it by quarters.  For example, the Franklin was launched on 8/1/2019.  My first period will include data from 7/31/2019 through 9/30/2019.  Since the Franklin is such a new portfolio the Sortino Ratio will not be all that useful as I only have the 3rd and 4th quarters of 2019 and only one quarter of 2019.

So as to come up with more periods for calculation, I will use monthly periods for the calculation.  More on this in a later blog post.

All the necessary data is included in the IAM portfolio tracking software to make the Sortino Ratio calculation.  While I only keep monthly historical data in the IAM program, one can store more if more is useful.  One big advantage of the IAM software over the old TLH Spreadsheet is that one can specify periods of return with the IAM.  That was not possible with the now defunct TLH Spreadsheet.

I hope a few readers find this information useful and if so, leave a comment or question.  Be sure to watch the Sortino Ratio video as it is quite clear.