Appraisal Ratio

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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

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. ...
  2. Standard Deviation

    1. A measure of the dispersion of a set of data from its mean. ...
  3. Benchmark

    A standard against which the performance of a security, mutual ...
  4. Beta

    A measure of the volatility, or systematic risk, of a security ...
  5. Fund Manager

    The person(s) resposible for implementing a fund's investing ...
  6. Appraisal

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