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Sharpe and Sortino Ratio Calculator

This utility offers easy-to-use Python functions to calculate Sharpe and Sortino ratios for financial returns. These ratios help you understand whether a series of investment returns is attractive on a risk-adjusted basis.

What are the Sharpe and Sortino Ratios?

Sharpe Ratio measures how much excess return you get for each unit of total risk you take (as measured by volatility). Sortino Ratio is similar, but only counts downside risk, ignoring upside swings.

  • Higher values mean better risk-adjusted returns.
  • Used by professional and retail investors to evaluate stock, fund, and portfolio performance.

How to Use

  1. Make sure you have Python and numpy installed.
  2. Put your list or array of returns (like daily or monthly returns) in the code.
  3. Call the sharpe_ratio() or sortino_ratio() function from the ratio_calculator.py file.
  4. Optionally, set the risk-free rate and number of periods per year.

Example

from ratio_calculator import sharpe_ratio, sortino_ratio
import numpy as np

daily_returns = np.random.normal(0.001, 0.01, 252)
print("Sharpe Ratio:", sharpe_ratio(daily_returns))
print("Sortino Ratio:", sortino_ratio(daily_returns))

Why Does This Matter?

  • Compare the quality of investments, not just raw returns.
  • Identify if an asset rewards you for the risk you take.
  • Learn core principles of risk management and portfolio analysis.

For more finance learning, check /Documentation or see other UTILS modules!