Sortino Ratio

The Sortino Ratio measures excess return per unit of downside deviation, ignoring positive return swings that Sharpe would penalize.

The math

Sortino = (R_p − R_f) / σ_d

σ_d = downside deviation — standard deviation of returns below the target return (typically 0%).

Why it matters

Prediction-market strategies often have asymmetric payoffs: frequent small losses with occasional large wins, or the reverse. Sharpe penalizes both. Sortino rewards the profile that loses small and wins big, making it a better filter for strategies you actually want to trade. A Sortino > Sharpe means the strategy's volatility is skewed upward.

Downside deviation depends on the target return threshold — changing it changes the number. Pancake fixes the target at 0%. At very small trade counts, downside deviation can be estimated poorly, so Sortino inherits the same small-N fragility as Sharpe.

Published source

Sortino, F. A. & Price, L. N. (1994). "Performance Measurement in a Downside Risk Framework." Journal of Investing, 3(3), 59–64.

See it in a real receipt

Open receipt /r/MupOp1tS