The Sortino measure differs from the Sharpe ratio in that
A) It measures the portfolio's average return in excess of a user-selected minimum acceptable return threshold.
B) It measures the downside risk in a portfolio.
C) Higher values of the Sortino measure are not desirable, while higher values in the Sharpe ratio are desirable.
D) Both a and b
E) All of the above.

Question

Quizplus · Accepted Answer

The Sortino measure and Sharpe ratio are both used to evaluate the risk-adjusted return of a portfolio. However, the Sortino measure differs in that it only considers the downside risk, whereas the Sharpe ratio considers both upside and downside risk. Additionally, the Sortino measure measures the portfolio's return relative to a user-selected minimum acceptable return threshold, while the Sharpe ratio measures the portfolio's return relative to its total volatility. Therefore, the correct answer is D, as both statements A and B are true. Statement C is incorrect, as higher values of both the Sortino measure and Sharpe ratio are desirable, indicating a higher risk-adjusted return.

The Sortino Measure Differs from the Sharpe Ratio in That