The Sharpe Ratio and Sortino Ratio are both risk-adjusted performance measures that are used to evaluate the performance of investment portfolios, mutual funds, and hedge funds. The main difference between the two ratios is the way they measure the risk of an investment.

The Sharpe Ratio is calculated by dividing the excess return of a portfolio (the portfolio return minus the risk-free rate) by its standard deviation. The Sharpe Ratio is widely used to compare the risk-adjusted performance of different investment portfolios, as it takes into account both the return and the volatility of the portfolio.

The Sortino Ratio, on the other hand, is similar to the Sharpe Ratio, but it uses downside deviation instead of standard deviation in the denominator. Downside deviation measures the deviation of returns below a certain threshold, such as the minimum acceptable return or the risk-free rate. By focusing only on the downside risk, the Sortino Ratio provides a more targeted and relevant measure of risk-adjusted performance for investors who are more concerned about avoiding losses than maximizing returns.

In summary, while the Sharpe Ratio and Sortino Ratio are both used to evaluate the risk-adjusted performance of investment portfolios, the Sharpe Ratio uses the total standard deviation of returns to measure risk, while the Sortino Ratio focuses on downside deviation to better capture the risk that investors care about most.
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