Sortino Ratio

Sortino Ratio was authored by Frank A. Sortino. The Sortino is similiar to the Sharpe Ratio except for the standard deviation component. It is designed to evaluate how well an investor is compensated for the risk taken. The higher the Sortino the better the instrument’s performance. The main ingredients are current price and a prior price which are adjusted with the user defined safe return. An average and standard deviation (minus part only) are taken; and the Sortino is their quotient. The user must select linear bars but may change the input (close), period length and a safe value. This indicator’s definition is further expressed in the condensed code given in the calculation below.

See Sortino Ratio
See also Sharpe Ratio

How To Trade Using the Sortino Ratio

The Sortino Ratio may be used to evaluate a instrument’s performance. No trading signals are calculated.

How To Access in MotiveWave

Go to the top menu, choose Study>Performance>Sortino Ratio

or go to the top menu, choose Add Study, start typing in this study name until you see it appear in the list, click on the study name, click OK.

Important Disclaimer: The information provided on this page is strictly for informational purposes and is not to be construed as advice or solicitation to buy or sell any security. Please see our Risk Disclosure and Performance Disclaimer Statement.

Calculation

//input = price, user defined, default is close
//period = p1, user defined, default is 30
//safe = safe return percentage, user defined, default is 2
//av = average, pow = power
//sma = simple moving average, sdDev = standard deviation
//index = current bar number

BarSize bar = getBarSize();
if (bar.getType() == BarSizeType.LINEAR) barMin = bar.getInterval();
else return;
minPerYr = 60*24*30*12;
barsPerYr = minPerYr/barMin;
adjSafe = Math.pow((1 + (safe)), p1/barsPerYr) - 1; //safe return per period compounded
priorP = price[index-p1];
ret = ((price/priorP)-1) - adjSafe; //safe return subtracted here to reflect Sharpe 1994 revision
av = sma(index, p1, RET);
stdMinus = sdDev(index, p1, RET)[2];
if (stdMinus != 0 )sortino = av / stdMinus;
Plot: sortino;