Alpha: Shows how much the portfolio is giving returns compared to the benchmark
Unsystematic Risk: It is the risk associated specifically to the company. It can be diversified by investing in different type of instruments. Managers of an active fund try to beat their benchmark index. By comparing the returns of their stock picks with the specific risks associated, the appraisal ratio is measured. The higher the ratio, the better it is.
The Appraisal Ratio measures return on investment for a every unit of risk. The return considered is only the “Alpha” part that helps in pointing the stock picking skills of the Fund manager.