The Sortino ratio is another highly used metric in traditional finance to assess the risk-return performance of an asset. At IntoTheBlock we calculate this metric the following way:
Sortino Ratio = Average Return / Standard Deviation of Down-side Returns
The sortino ratio displayed can be calculated for different time frames, and does not consider the risk-free rate as it has been at near-zero levels adjusted to inflation.
The sortino ratio displays the performance of an asset relative to its downside risk. This is useful for investors looking to go long but worried about potential crashes.
In the example above, we observe that both Bitcoin and Ethereum have amongst the highest sortino ratios in the last year, in spite of the high volatility they incurred in March 2020.