Just like the Sharpe Ratio, the Sortino ratio also measures risk-adjusted return.

But there's a twist! 😲

Sortino ratio only considers downside risk or the risk of prices falling, which is reflected in a number called "downside deviation" 📉

💡Sortino Ratio = (investment return ➖ risk free rate) ➗ downside deviation.

But what's downside deviation? Let's dig in! 🧐

💡Downside Deviation = return that’s less than what you want 💔

It’s like a bad-case scenario of a stock, usually compared to the risk-free rate 🏦

So, if you're an investor who's more worried about losses, the Sortino ratio is your buddy! 🤝

Let's say in the last year Google had a 55% return 💰

Risk-free rate was 4% 💸

And downside deviation was 17% 📝

So, (55% ➖ 4%)➗ 17% = 3 💪

This means Google's Sortino Ratio is 3 🥳

Over the same period, Amazon had a 75% return, but only a 2.7 Sortino Ratio. . . 🤔

So, Google stock actually provided more return relative to downside risk than Amazon, despite having the lower actual return! 🎉

So remember, Sortino Ratio helps you calculate risk-adjusted return, but with a focus on downside risk 🛑