# Sortino ratio

Guys, Reading 36 -problem 43 on page 129 Statement 4: The Sortino ratio is the best means to examine the cosistency of hedge fund returns 43. Statement 4 is: A. Correct B. Incorrect, because it would be bettwer to use rolling returns C. Incorrect, because it would be better to use the downside deviation

B

Downside deviation measures the bottom portion of variance (standard deviation’s lower half) (measures variance) Sortino ratio is like sharp ratio, only replacing standard deviation with downside deviation. (measures risk-return) Rolling returns are used to measure consistency of performance over time. (consistency)

Thanks McLeod81. Got it.

Further question - isn’t it the case that volatility of returns is more persistent through time than the level of returns? In that case, shouldn’t it volatiity / deviation the best means to examine the performance of hedge fund?

I guess we are measuring Hedge Fund Returns-consistence/levels(Not Hedge Fund Volatility!)-and to account for Return adjusted for risk(to avoid taking excessive risk),we are comparing alternative measures of Risk to finally arrive at Risk Adjusted Return,rather than Returns adjusted risk?

I found this paper to be a helpful supplement.