is the sortino ratio good for comparing portfolios? if not what is?

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tcrez
Posts: 306
Joined: Mon Mar 01, 2021 10:46 pm

is the sortino ratio good for comparing portfolios? if not what is?

Post by tcrez »

I'm curious to understand what measurements are ideal for measuring a portfolio's return. I tried the sortino ratio using this: https://www.educba.com/sortino-ratio/ and found it gave a lower result for a portfolio that goes from 100 , 75, 95, 110, 120 than a 100, 55, 95, 110, 120.

They both end at the same value, but the second one has a much higher drawdown and a higher sortino ratio. I'd rather have the one with the lower drawdown. I thought the sortino ratio was good because drops are more heavily weighted but it gave a better result for the one with the same final return but deeper drawdown.
Bitzer
Posts: 210
Joined: Mon Apr 04, 2011 10:25 am

Re: is the sortino ratio good for comparing portfolios? if not what is?

Post by Bitzer »

I use what is called the "Martin Ratio". You can google to see the differences.
dbr
Posts: 46137
Joined: Sun Mar 04, 2007 8:50 am

Re: is the sortino ratio good for comparing portfolios? if not what is?

Post by dbr »

I don't think there is an ideal statistic for comparing portfolios. Investing is inherently variable in an unpredictable way and is not amenable to the attachment of performance specifications. You are not buying a car and looking at acceleration, skid pad, and braking statistics or even fuel economy.

Some notion of expected return and expected risk, measured as standard deviation of returns, locates a portfolio in a broad ballpark. There is such broad uncertainty in actual results that you can't make any but the roughest predictions of actual results from any of the statistics you gather. Many choices of portfolios will overlap hugely in possible outcomes.
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