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IntermediateStock Alerts + Tools0:45Portfolio

Return Per Unit of Discomfort

Sharpe divides excess return by total volatility; Sortino divides it by downside volatility only, which changes who looks good.

0:45 · 6 scenes

This lesson is part of a Stock Alerts + Tools plan.

What the lesson covers

  1. 0:00A return figure alone cannot tell you what was risked to get it.
  2. 0:05The Sharpe ratio. Return above the risk-free rate, divided by how much the returns bounced around.
  3. 0:14The objection. It punishes a large gain exactly as much as an equally large loss.
  4. 0:23Where they disagree. A strategy with occasional large gains scores far better on Sortino.
  5. 0:32The shared blind spot. Both assume returns are well behaved, and both are easily gamed by selling options.
  6. 0:40Read them with the drawdown, never on their own.
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Educational content only. MadStockAlerts provides market commentary, research, and educational content. It is not personalized investment advice, and nothing here is a recommendation to buy or sell any security. Trading and investing involve substantial risk, including loss of capital. See the Risk Disclosure and Customer Agreement.
Educational content only. MadStockAlerts provides market commentary, research, and educational content. It is not personalized investment advice, and nothing here is a recommendation to buy or sell any security. Trading and investing involve substantial risk, including loss of capital. See the Risk Disclosure and Customer Agreement.
Return Per Unit of Discomfort — MAD Academy Training Video · MadStockAlerts