Risk Management · Technical Publication

Sharpe Ratio, Sortino Ratio and Quant Performance Metrics

Learn how to evaluate quantitative trading performance: Sharpe Ratio, Sortino Ratio, Calmar Ratio, Max Drawdown, Information Ratio, and Win Rate.

Technical White Paper Enter QuantLab

Publication TrackRisk Management

Date of Release2026-07-22

Reading Time9 min read

StatusVerified Engineering Article

#Sharpe Ratio#Sortino Ratio#Performance Metrics#Drawdown#Calmar Ratio

Executive Brief

Key Takeaways

01.Sharpe Ratio measures excess return per unit of total risk (standard deviation).
02.Sortino Ratio penalizes only downside volatility, ignoring beneficial upside volatility.
03.Annualization factors must match return frequency (√252 for daily data, √12 for monthly).

Sharpe Ratio & Sortino Ratio Defined

The Sharpe Ratio quantifies risk-adjusted performance by dividing portfolio excess return (over the risk-free rate) by portfolio return standard deviation. The Sortino Ratio replaces total standard deviation with downside deviation.

Raw returns are meaningless without accounting for the risk and leverage deployed to generate them.

Sharpe Ratio	Interpretation in Systematic Trading
< 1.0	Suboptimal; risk per unit return is high
1.0 - 1.9	Good; acceptable for multi-asset systematic funds
2.0 - 2.9	Very Good; robust institutional quant strategy
> 3.0	Exceptional (or check for backtest over-fitting / look-ahead bias)

\text{Sharpe Ratio} = \frac{E[R_p] - R_f}{\sigma_p}

Frequently Asked Questions

What is an annualized Sharpe ratio?

To annualize daily Sharpe ratio, multiply the daily ratio by √252. For monthly returns, multiply by √12.

#Sharpe Ratio#Sortino Ratio#Performance Metrics#Drawdown#Calmar Ratio

Executive Brief

Key Takeaways

01.Sharpe Ratio measures excess return per unit of total risk (standard deviation).
02.Sortino Ratio penalizes only downside volatility, ignoring beneficial upside volatility.
03.Annualization factors must match return frequency (√252 for daily data, √12 for monthly).

Sharpe Ratio & Sortino Ratio Defined

Raw returns are meaningless without accounting for the risk and leverage deployed to generate them.

Sharpe Ratio	Interpretation in Systematic Trading
< 1.0	Suboptimal; risk per unit return is high
1.0 - 1.9	Good; acceptable for multi-asset systematic funds
2.0 - 2.9	Very Good; robust institutional quant strategy
> 3.0	Exceptional (or check for backtest over-fitting / look-ahead bias)

\text{Sharpe Ratio} = \frac{E[R_p] - R_f}{\sigma_p}

Frequently Asked Questions

What is an annualized Sharpe ratio?

To annualize daily Sharpe ratio, multiply the daily ratio by √252. For monthly returns, multiply by √12.