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Explanation:
The Sortino ratio is a variation of the Sharpe ratio that differentiates harmful volatility from total overall volatility by using the asset's standard deviation of negative portfolio returns—downside deviation—instead of the total standard deviation of portfolio returns. Sortino ratio = (Expected Return - Target Return) / Downside Deviation Sortino ratio = (0.0519 - 0.04) / 0.0017569 = 0.0119 / 0.0017569 ≈ 6.77.
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Q.54 Over a 15-year period, the manager of a certain fund used a covered call strategy in an attempt to increase the return of the fund. The mean of the 15 portfolio returns is 0.0519, and the minimum acceptable return is 4%. Given that the downside deviation, as measured by the standard deviation of returns below the target is 0.0017569, compute the Sortino ratio.
A
6.77
B
-2247.2
C
0.0119
D
0.04