This measure is similar to the Sharpe ratio, except that it uses downside deviation as a denominator, whereas the Sharpe ratio uses standard deviation. The Sortino ratio is the ratio of the excess return (compared to the risk-free rate) over the downside semi-volatility, so it measures the return to "bad" volatility.

This ratio allows investors to assess risk in a better manner than simply looking at excess returns to total volatility, since such a measure does not consider how often the price of the security rises as opposed to how often it falls.