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Can Sortino ratio be higher than Sharpe?
As always, we’ll start with a definition. Sharpe ratio is the excess return of a portfolio above the risk-free rate relative to its standard deviation. If the Sharpe or Sortino ratio is greater than 1, you have effectively been compensated for this risk, with higher numbers meaning greater risk-adjusted returns.
Is a high Sortino ratio good?
A Sortino ratio greater than 1.0 is considered acceptable. A Sortino ratio higher than 2.0 is considered very good. A Sortino ratio of 3.0 or higher is considered excellent.
What is an acceptable Sortino ratio?
As a rule of thumb, a Sortino ratio of 2 and above is considered ideal. Thus, this investment’s 0.392 rate is unacceptable.
What is a bad Sortino ratio?
A higher Sortino ratio is better than a lower one as it indicates that the portfolio is operating efficiently by not taking on unnecessary risk that is not being rewarded in the form of higher returns. A low, or negative, Sortino ratio may suggest that the investor is not being rewarded for taking on additional risk.
What is the difference between the Sharpe ratio and the Sortino ratio?
The Sharpe ratio indicates how well an equity investment is performing compared to a risk-free investment, taking into consideration the additional risk level involved with holding the equity investment. The Sortino ratio is a variation of the Sharpe ratio that only factors in downside risk.
What is upside capture?
Upside capture is simply the ratio of a fund’s overall return to global equity market returns evaluated over periods when equities have risen. Downside capture is the same ratio when equities have fallen. The time period for measurement matters. Too short and results can be meaningless and volatile.
What does a high Sortino ratio mean?
Just like the Sharpe ratio, a higher Sortino ratio result is better. When looking at two similar investments, a rational investor would prefer the one with the higher Sortino ratio because it means that the investment is earning more return per unit of the bad risk that it takes on.
What is downside capture?
The upside/downside capture ratio measures the ratio of the upside and downside of an investment vs a benchmark. This ratio explains to you how an investment typically performs in relation to their benchmark index.
What is a good Jensen’s Alpha?
Jensen’s measure is one of the ways to determine if a portfolio is earning the proper return for its level of risk. If the value is positive, then the portfolio is earning excess returns. In other words, a positive value for Jensen’s alpha means a fund manager has “beat the market” with their stock-picking skills.
The Sharpe ratio and the Sortino ratio are both risk-adjusted evaluations of return on investment. The Sortino ratio is a variation of the Sharpe ratio that only factors in downside risk.
Is a high Sortino ratio good or bad?
Ideally, a high Sortino ratio is preferred, as it indicates that an investor will earn a higher return for each unit of a downside risk. The Sortino ratio is used to determine the risk-adjusted return on investment. It is a refinement of the Sharpe ratio but only penalizes the returns, which have downside risks.
What is considered a good Sharpe ratio?
A Sharpe ratio of one or higher is commonly considered a good risk-adjusted return rate. The Sortino ratio variation of the Sharpe ratio measures the performance of the investment relative to the downward deviation.
What is the downward deviation for Sortino ratio?
The downward deviation is used for Sortino ratio calculation, whereby it considers only those periods when the rate of return was lower than the target or risk-free rate of return. To illustrate these, let us take another example; assuming an investment portfolio scheme with the below returns in 12 months: