Sortino ratio is a financial ratio that is used to measure the performance of investment portfolio and is very similar to a Sharpe ratio. The main difference between Sortino ratio and Sharpe ratio is that Sharpe ratio includes normal standard deviation of the portfolio while Sortino ratio calculates standard deviation only from negative returns of a portfolio during the period.
From one point of view Sortino ratio has advantage against Sharpe ratio because it eliminates the positive volatility which may mean not the real volatility but better management and excess returns. However, from another point of view it may be disadvantage, especially if market was increasing during that period because the negative return will not be fully unmasked and the real volatility will remain unclear.
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