Sortino Ratio

The Sortino Ratio is a risk metric and it is similar to the Sharpe Ratio, but the Sortino Ratio only penalizes traders for larger losing trades and not for winning trades as the Sharpe Ratio does.

The formula we use is: (Sum return of all trades) / (Standard devation of return of all losing trades)

The Sortino Ratio is, therefore, the superior metric because it only looks at the downside risk. A trader who realizes large losing trades will see his Sortino Ratio drop.