The Sortino ratio replaces total volatility with downside deviation, thus not penalizing upside volatility. Its formula is: (Rp - T) / σd, where T represents the target rate and σd the volatility of returns below T. This allows assessment of only the risks associated with downside movements.

The Treynor ratio measures excess return per unit of systematic risk, i.e., per unit of the portfolio's beta. Its formula is: (Rp - Rf) / β. This ratio is particularly relevant for evaluating well-diversified portfolios where specific risk has been largely eliminated.

Since the discontinuation of EONIA, the €STR (Euro Short-Term Rate), published daily by the ECB at 8:00 AM CET, has become the reference rate for risk-adjusted performance calculations in the eurozone. Euribor, although commonly used, incorporates an interbank credit risk premium, making it less appropriate as a proxy for the pure risk-free rate.

The Sharpe ratio formula is essential for measuring risk-adjusted performance. It is calculated as the quotient of the difference between the portfolio return (Rp) and the risk-free rate (Rf), divided by the portfolio volatility (σp). The formula is: Sharpe Ratio = (Rp - Rf) / σp. Each component requires precise methodological choices to ensure consistency of results.

The Sharpe ratio measures the excess return per unit of risk. If the portfolio return (Rp) is lower than the risk-free rate (Rf), then (Rp - Rf) becomes negative, and since volatility (σp) is always positive, the Sharpe ratio will be negative. A negative ratio indicates that the portfolio's performance is inferior to that of a risk-free investment, which calls into question the merits of the investment.

The items to classify include key concepts related to the Sharpe ratio. The portfolio return (Rp) and the risk-free rate (Rf) are components of the numerator, while volatility (σp) is a component of the denominator. Annualization factors are used to adjust volatility according to the periodicity of returns.

Return annualization is performed through geometric compounding. The formula is: Annualized Return = (1 + Cumulative Return)^(365/number of days) - 1. This method allows comparison of performances over different periods by converting them to an equivalent annual return.

According to the professional interpretation grid, a Sharpe ratio above 2 reflects excellent risk-return management. A ratio above 3 even indicates exceptional performance. A ratio between 0 and 1 suggests that the return is in line with the risk without any particular advantage.