Sortino vs Sharpe ratio

Hey all,

I kept seeing the Sharpe ratio mentioned in the CFA curriculum. But not the Sortino ratio, which supposedly would be a better measure since it only captures the downside risk. Upside risk should be welcome, right?

So can someone explain why the Sharpe is used mostly by the CFA and not the Sortino? In my mind, it should have been the opposite.

Thanks

agree with you. but no one uses sortino. its kinda like when ppl quote the dow when the SPY is prolly a better measure. or when people want to hear the absolute number movement of the dow vs the daily percent which makes more sense.

^Sharpe is almost always a factor for quant screens. Sometimes Sortino is too. I’m with OP. Sortino is better but Sharpe is definitely used way more.

In the whole philosophy of quantitative mathematics, things like the Sortino ratio are generally frowned upon by quantitative purists because the risk measure component prescribed by the metric is a discontinuous, partial distribution. Therefore, a quant would say you can’t really easily scale that metric to longer timeframes, say, in the sense of annualizing a standard deviation. Even though you can certainly apply an annualization to a partial distribution, quantitatively, it is meaningless since the distribution would not be considered as an “independently and identically distributed random variable” (IID).

That said, however, much work has been done to dismantle the Gaussian-centered nonsense of many traditional quantitative approaches in the last few decades, and those die-hard classic quant guys fail to see that measures like the Sortino ratio can still provide a valuable ranking function, even if they don’t fit into the framework of attempting to cram (incorrectly) man-made processes into the bounds of a normal distribution.

lol whoops sorry thats what i meant. no one uses sortino. eeryone uses sharpe.

Duuuuuuuuuuuude, I was just transported back to 2nd year Mathematical Stats with this one!!! :nerd_face: :exploding_head: :scream:

Inertia.

:racehorse:

Clearly they change the curriculum every so often to make it more up-to-date and to improve it. So inertia doesn’t sound as good a reason. I really don’t understand why not also discuss Sortino at some length. Which leads me to wonder what other “good” things they may have not included in the curriculum.

The Sortino ratio’s been in the curriculum for years.

I believe that the emphasis on the Sharpe ratio (over the Sortino ratio) is easily explained by inertia.

i still remember when i tried to get it changed for a presentation to sortino. and it was shut down. ur prolly right, but no one uses that. also its important to note that most people dont give a ■■■■ just the nerds. hell id already be impressed if they can tell me what sharpe is.

I will need to use the Google Translator from Chinese to English to understand this post :smile:

What DOW said. (Actually, I have no idea what he meant. It pretty much went waaaaaay over my tiny pea-brained head. But it sounds really cool!!!)

I like the juxtaposition of the “Inertia.” and :racehorse:. :yin_yang: