Two strategies both made 10% a year. One did it calmly, the other on a wild rollercoaster. The Sharpe ratio formalizes why the first is better: (return − risk-free rate) ÷ volatility. Higher = more return per unit of risk.
Reading the values
Over long periods on real data: around 0.5 is decent, 0.8–1.0 is very good, and a multi-year "2+" in marketing materials usually means a short window, an over-fit backtest, or ignored costs. Note that Sharpe computed without subtracting the risk-free rate flatters the result — we compute it conservatively, as documented in the methodology.
How Sortino differs
Sortino penalizes only downside volatility (deviation below a target), since upside swings bother nobody. For strategies with asymmetric returns (e.g. trend following — many small losses, rare big wins) Sortino describes the experience better than Sharpe.
Comparison traps
- Different periods = incomparable numbers. A bull-market Sharpe says nothing about a full cycle.
- Costs and slippage can shave off tenths.
- The ratio is blind to drawdowns — always read it together with max drawdown.
Every strategy here reports Sharpe and Sortino computed the same way on the same data, so the comparison page is apples-to-apples — including the deliberately boring Safe Yield baseline.
Educational material — not investment advice.