DEFINITION of 'Appraisal Ratio'
The appraisal ratio is a ratio used to measure the quality of a fund manager's investmentpicking ability. It compares the fund's alpha to the portfolio's unsystematic risk or residual standard deviation. The fund's alpha is the amount of excess return the manager has earned over the benchmark of the fund. It is the portion of the return that the portfolio manager's active management is responsible for. The ratio shows how many units of active return the manager is producing per unit of risk.
BREAKING DOWN 'Appraisal Ratio'
The appraisal ration can be used to determine a manager's investmentpicking ability. By selecting a basket of investments, the managers of an active investment fund attempt to beat the returns of a relevant benchmark or 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.

Residual Standard Deviation
The residual standard deviation is a statistical term used to ... 
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Unsystematic Risk
Unsystematic risk is unique to a specific company or industry ... 
Alpha
Alpha, used in finance as a measure of performance, is the excess ... 
Sharpe Ratio
The Sharpe ratio is the average return earned in excess of the ... 
Active Risk
Active risk is a type of risk that a fund or managed portfolio ...

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