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← Limitations of the Sharpe Ratio
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Question
Why does the Sortino ratio treat risk differently from the Sharpe ratio?
1
It uses a longer measurement period
2
It subtracts the inflation rate rather than the risk-free rate
3
It divides by downside deviation only, ignoring upside volatility, so it does not penalise positive surprises
4
It weights recent returns more heavily than older returns
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