The Sortino ratio is a variant of Sharpe that only counts downside volatility as risk.
Sortino = (return − target return) ÷ downside deviation
Downside deviation is the standard deviation of returns that fall below the target, usually zero or the risk-free rate. Returns above the target don’t count against the strategy.
Why it exists
Sharpe treats a month of +8% as exactly as risky as a month of −8%. Nobody experiences it that way. Upside volatility is what you’re hoping for.
Sortino fixes that by penalising only the variability that hurts. A strategy with steady gains and occasional sharp rallies scores far better on Sortino than on Sharpe, and arguably deserves to.
Reading it
Sortino is always higher than Sharpe for the same strategy, because the denominator is smaller. So the thresholds shift: above 1.0 is adequate, above 2.0 is good, above 3.0 is strong.
Comparing a Sortino from one source to a Sharpe from another is meaningless. Compare like with like.
Its weakness
Fewer data points in the denominator. If a strategy has rarely lost, downside deviation is computed from a handful of observations and the ratio is unstable. A strategy that has never seen a bad regime will have a spectacular Sortino right up until it does.