The Sortino ratio differs from the Sharpe ratio in that it takes into account only the standard deviation of the downside risk, and not the total (up + down) risk.
Since the Sortino ratio only focuses on the negative deviation of a portfolio’s return from the mean, it is considered to give a better indication of the risk-adjusted return of a portfolio, since positive volatility is an advantage.
The Sortino ratio is a useful way for investors, analysts and portfolio managers to evaluate the return on an investment for a given level of hopeless risk.
Arbitrage Pricing Theory (APT) is a multi-factor asset pricing model based on the idea that an asset’s return can be predicted using a linear relationship between an asset’s expected return and a set of macroeconomic variables that account for systematic risk.
Beta (β), primarily used in the Capital Asset Pricing Model (CAPM), is a measure of the volatility or systematic risk of a security or portfolio compared to the market as a whole.
The Fama French three-factor model is an asset pricing model that extends the capital asset pricing model by adding size and value risk factors to market risk factors.
Modern Portfolio Theory (MPT) is a method that risk-averse investors can use to create diversified portfolios that maximize their returns without an unacceptable level of risk.
Leveraged beta (commonly referred to as simply beta or equity beta) is a measure of market risk. Debt and equity are taken into account when assessing a company’s risk profile.