What Is a Good Sortino Ratio? Benchmarks and How to Read It

A Sortino ratio above 2 is generally considered strong, 1 to 2 is solid, and anything under 1 is weak. The ratio measures how much return a strategy earned for each unit of downside risk it took, so a higher number means you were paid better for the losses you actually had to sit through. Because it counts only downside volatility and ignores upside swings, a good Sortino ratio is usually a bit higher than a good Sharpe ratio on the same strategy. Like every backtest statistic, the number is only trustworthy when it rests on enough trades and a long enough history.

That single benchmark hides a lot of nuance, so it is worth understanding what the ratio actually rewards, where it beats the more famous Sharpe ratio, and how it can still mislead you. Here is the practical version.

What is the Sortino ratio?

The Sortino ratio is a risk-adjusted return measure that divides a strategy's return above a minimum acceptable return by its downside deviation, the volatility of only the negative returns. It answers a specific question: for the pain of the losing periods, how much return did I get back? A strategy that grinds out steady gains with shallow drawdowns scores high; one that earns the same average return through violent losing stretches scores low.

The formula is straightforward once you name the parts.

The one idea that makes the Sortino ratio different is in that last row. Standard deviation, which the Sharpe ratio uses, treats a big winning month as "risk" exactly like a big losing month, and what that measure does and does not capture is unpacked in standard deviation of returns. Downside deviation only counts the losing side. That matches how traders actually feel risk: nobody loses sleep over an unexpected 8% gain.

What is a good Sortino ratio?

As a rule of thumb, a Sortino ratio above 2 is strong, 1 to 2 is respectable, and below 1 means you were not well paid for the downside you endured. A ratio near or below 0 means the strategy failed to clear your minimum acceptable return at all. These are guidelines, not laws, and they only mean something over a long sample.

Treat a very high ratio the way you would treat a too-good win rate: with suspicion first. A Sortino ratio of 4 on twelve trades is not a great strategy, it is a small sample. Check how many trades and how many years produced the number before you believe it.

Sortino ratio vs Sharpe ratio: what is the difference?

The Sharpe ratio divides excess return by total volatility, counting upside and downside swings equally, while the Sortino ratio divides excess return by downside deviation only. In plain terms, Sharpe penalizes a strategy for being volatile in any direction; Sortino only penalizes it for losing. For a strategy with occasional large gains, the Sortino ratio will usually look better than the Sharpe ratio, because those upside spikes stop counting against it.

Neither is "correct" on its own. Sharpe is the common language, so most tools and reports quote it, and you can read what the numbers mean in our guide to what is a good Sharpe ratio. Sortino is the more honest picture of pain when a strategy's returns are skewed. The best habit is to read both: if Sharpe is mediocre but Sortino is strong, the strategy's volatility is mostly to the upside, which is the kind of "risk" you want.

How do you calculate the Sortino ratio?

You calculate it in four steps: pick a minimum acceptable return, measure the strategy's return above it, compute the downside deviation of the returns that fell below the threshold, then divide. The one part people get wrong is the downside deviation, so it helps to slow down there.

1. Choose the minimum acceptable return. Many analysts use 0% (any loss is "bad") or the risk-free rate. State it plainly, because the ratio changes with the threshold you pick.
2. Collect the period returns. Usually monthly or daily returns across the full backtest.
3. Compute downside deviation. Take only the returns below your threshold, square their shortfalls, average those, and take the square root. Upside periods contribute zero.
4. Divide. Subtract the threshold from the strategy's return and divide by that downside deviation. Annualize if your inputs were monthly or daily.

You rarely compute this by hand. Any serious backtest reports it for you, which is the point of testing on real history rather than eyeballing a chart. A metric is only as good as the data feeding it, so a Sortino ratio built on 20+ years of adjusted prices means far more than one built on a two-year sample.

What are the limits of the Sortino ratio?

The Sortino ratio shares every weakness of a single summary number. It can be inflated by too few trades, distorted by a short backtest that missed a real bear market, and gamed by a strategy that hides risk in rare, catastrophic losses that the sample happened to dodge. A high Sortino ratio with a brutal maximum drawdown underneath it is a warning, not a green light, so always read it next to the worst peak-to-trough loss the strategy actually took. Our explainer on maximum drawdown covers that number.

It also depends entirely on the threshold you chose and the period you tested. Move the minimum acceptable return, or start the backtest after the last crash, and the ratio shifts. This is why an honest report shows the assumptions on the page instead of just printing a flattering figure.

The honest bottom line

A good Sortino ratio is above 2, a solid one is 1 to 2, and anything under 1 tells you the downside was not worth the return. Read it alongside the Sharpe ratio, the maximum drawdown, and the expectancy per trade, never alone, and always ask how long the history behind it runs. If the drawdown is what you care about most, the Calmar ratio divides return by exactly that. That is the whole idea behind Agenttrading: type a thesis in plain English, and it backtests the rule on 20+ years of split- and dividend-adjusted daily data, reports the risk-adjusted numbers and the worst drawdown side by side, and stamps an honest verdict, HELD UP, MIXED, or UNDERPERFORMED, even when the idea loses to buy-and-hold. For the benchmark-relative view of the same performance, what is a good alpha covers what counts as beating the index once risk is accounted for. You can see the full risk picture on our investment risk analysis page, or drop a rule straight into the trading strategy tester and watch every metric come back at once.

Past performance does not guarantee future results. For educational and informational purposes only. Not financial advice. Consult a licensed advisor.