System A has a return of 50% in year 1 and - 20% in year 2. System 2 has a return of 35% in year 1 and - 5% in year 2. Please calculate both Sharpe and Sortino ratios and then after we determine that you well understand these notions we will discuss them.
Okay, assuming the risk-free rate is 0, the Sharpe Ratio: A: 0.3030 B: 0.5303 the Sortino Ratio: A: 15% / 20% = 0.75 B: 15% / 5% = 3 Hopefully my understanding about the denominator is correct. http://en.wikipedia.org/wiki/Sortino_ratio ------------- Still what's the range of a typically good Sortino ratio?
How did you calculate the Sharpe ratios? What are the numerator and denominator in each case and why?