This Excel spreadsheet calculates the Sortino Ratio for an investment, a measure of risk-adjusted return. Investments that emphasize their Sortino Ratio often try to how to calculate return on investment ratio their losses as a part of their trading strategy. Investors can use a range of measures to gauge the suitability of investments.

The Sharpe Ratio, for example, measures the risk-efficiency of investments by using standard deviation to represent risk. A disadvantage of this approach is that this penalizes both downside and upside volatility. Sharpe Ratio may not best represent investor psychology. Lower Sortino Ratios signify investments with a greater risk of large losses and should be avoided by risk-averse investors. The Sortino Ratio was developed as a commercial measure by the investment industry, and does not have the academic heritage and strict mathematical definition of the Sharpe Ratio.

As such, several methods are commonly used to measure downside risk, including the semi standard deviation, or the square root of the 2nd lower partial moment. There’s some uncertainty about whether you simply set all values above the minimum acceptable return to zero, or discard those values entirely when computing the downside risk. Sortino Ratio and remove these values entirely instead. So how would you apply this to a portfolio of ETFs and decide how to allocate capital between them? Also, the downside deviation is . 005054 but I am coming up with .

Am I off base, or is the poster incorrect? The yearly compounded return is indeed 8. So I think I’m correct, but let me know if you think not. This site takes time to develop.

We’ll assume you’re ok with this, but you can opt-out if you wish. This Excel spreadsheet helps you calculate the Omega Ratio, a financial benchmark created by Shadwick and Keating in 2002. The Omega Ratio is defined by the following equation. It is effectively equal to the probability weighted gains divided by the probability weighted losses after a threshold. The Sharpe Ratio only takes into account the first two moments of a return distribution, the mean and variance. This can often mislead investors about the downside potential of an investment.