BacktestFolio · Glossary
Downside Deviation
In plain language
Like regular volatility, but ignores upward moves — it only counts losses and disappointing returns. A portfolio with high total volatility but few losses will have low downside deviation and a good Sortino, even if overall volatility is high.
Technical definition
Standard deviation calculated only on returns below a target threshold (typically the risk-free rate or zero). It is the denominator of the Sortino ratio and measures downside risk, ignoring positive fluctuations.