Workstation Calculation Guide - Morningstar

42 Sharpe Ratio
The Sharpe Ratio is an expression of a fund’s return relative to the risk incurred after subtracting
the returns of a zero risk investment (Risk Free Rate). It’s a measure of efficiency that removes
the risk-free rate of return from observation. The higher the ratio, the better the fund.
Sharpe Ratio =
1/ n
p n1
1/
m
( 1
R f )
p
1
,
12
m
52
for monthly data
for weekly data
Annualized:
Sharpe Ratio =
m / n
p
n 1
(1 R f )
p1
,
m
12
m
52
for monthly data
for weekly data
Where
R f = Risk Free rate, user supplied, quoted on annual basis.
is the standard deviation of p / , i 1, 2, ,
i 1 p i n
Sharpe Ratio can also be run with a Benchmark in place of the Risk Free Rate, these are the
Sharpe (Bmk) and Sharpe (Bmk Ann) functions.
43 Sortino Ratio
Sortino Ratio is calculated the same as Sharpe Ratio except you use the downside risk as the
divisor. The larger the Sortino Ratio, the less the likelihood of large losses occurring.
Sortino Ratio =
1/ n
p
n1
1/
m
(1 R
f
p )
1
SV
x
,
12
m
52
for monthly data
for weekly data
R f = Risk Free rate, user supplied, quoted on annual basis.
SVx
= Downs ide Risk, see item 15 for description
There are three calculation options within Workstation for the Sortino, the difference is described
below:
Sortino Mean – this uses the mean semi-variance of the fund for the Minimum
Acceptable Return (i.e. calculates the average return of the fund and uses that)
Sortino Target – this enables the manual input of your target MAR.
Sortino Benchmark – this one enables you to choose a benchmark as your MAR.
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