Appraisal Ratio


DEFINITION of 'Appraisal Ratio'

A ratio used to measure the quality of a fund's investment picking ability. It compares the fund's alpha (or the adjusted return of the fund assuming the market return is zero) to the portfolio's unsystematic risk or residual standard deviation.

Appraisal Ratio

BREAKING DOWN 'Appraisal Ratio'

By selecting a basket of investments, the managers of an active investment fund attempt to beat the returns of a relevant benchmark or of the overall market. The appraisal ratio measures the managers' performance by comparing the return of their stock picks to the specific risk of those selections. The higher the ratio, the better the performance of the manager in question.

  1. Benchmark

    A standard against which the performance of a security, mutual ...
  2. Alpha

    Alpha is used in finance to represent two things: 1. a measure ...
  3. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. ...
  4. Analyst

    A financial professional who has expertise in evaluating investments ...
  5. Beta

    Beta is a measure of the volatility, or systematic risk, of a ...
  6. Appraisal

    A valuation of property (ie. real estate, a business, an antique) ...
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