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# Can anybody tell me the precise method of calculating Sortino ratio?

Discussion in 'Strategy Development' started by mizhael, Jun 18, 2010.

1. ### mizhael

I just wanted to verify that my way is the industry standard way...

Any clear detailed algorithm recipes?

Thanks!

I believe the general formula is:

(AROR-RFROR)/DR;

where:
AROR = Annualized Rate of Return
RFROR = Risk Free Rate of Return
DR = Downside Risk

Downside risk is generally defined as the standard deviation of negative returns.

4. ### mizhael

So you sift out all the negative returns and calculate the standard deviation of this subset of returns and you call that downside risk?

Okay then it's a simple change from Sharpe ratio.

5. ### mizhael

Thanks. So you are a R trader?

I really like R however I really really hate R's debugging functionality.

It's just not suitable for writing a little large program in bug-free manner.

And also I like those fancy stats packages however their quality assurance is my concern...

6. ### mizhael

The formulas for Sortino ratio of you two guys are different? Reconciliation?