# Appraisal Ratio

Appraisal Ratio is a portfolio manager's performance metric. It is defined as a measure of how much return the portfolio or fund manager brings to a fund per unit of risk.

**Appraisal Ratio**

Appraisal Ratio is a portfolio manager's performance metric. It is defined as a measure of how much return the portfolio or fund manager brings to a fund per unit of risk. The return in question is Alpha, the portion of return that is attributed to the fund manager's ability to outperform the stock market.

## Appraisal Ratio Formula

The appraisal ratio is calculated by taking its Alpha (a measure of the fund's return, assuming the market return is zero) and dividing by its Standard Deviation or Non-Systematic Risk.

## Appraisal Ratio Interpretation

The Appraisal Ratio is not well known and, thus, not widely used. It is practical, and also easy to calculate. Since the inputs come from widely used linear regression techniques, the Appraisal Ratio can be computed in many software packages, including Microsoft Excel, within seconds.

Money managers use the Appraisal Ratio to assess a fund or fund manager's performance relative to a chosen benchmark. The higher the appraisal ratio, the better the performance. The composition of funds and portfolios with sub-optimal appraisal ratios are then modified.