Appraisal Ratio (Treynor-Black)
Computes the Treynor-Black appraisal ratio: a manager's alpha divided by the standard deviation of residual risk, the part not explained by the market. It measures the quality of security selection per unit of specific risk taken, and is the central metric for deciding how much to allocate to an active strategy. The higher it is, the better the manager extracts abnormal return without taking on too much diversifiable risk. Enter the alpha and the residual standard deviation.
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Appraisal Ratio (Treynor-Black)
Computes the Treynor-Black appraisal ratio: a manager's alpha divided by the standard deviation of residual risk, the part not explained by the market. It measures the quality of security selection per unit of specific risk taken, and is the central metric for deciding how much to allocate to an active strategy. The higher it is, the better the manager extracts abnormal return without taking on too much diversifiable risk. Enter the alpha and the residual standard deviation.
How much the manager gets right per unit of bet
A manager can deliver alpha, return above what the market would explain, but at what risk cost? The appraisal ratio, created by Treynor and Black, answers this by dividing alpha by the standard deviation of residual risk, the part of volatility that comes from the manager's specific bets rather than the market. It's the efficiency of security selection.
The number has a powerful practical use: in Treynor-Black theory, it determines exactly how much money is worth allocating to a manager's active portfolio versus the passive index. The higher the appraisal ratio, the more weight the active strategy deserves. It's the rigorous way to separate skill from luck levered by risk.
Enter the alpha and the residual standard deviation, in the same units. The tool returns the appraisal ratio. Remember it depends on a reliable estimate of alpha and residual risk, usually obtained from a regression of the manager's returns against the market, so the quality of the input data is everything.
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Computes the Sterling ratio, a drawdown-adjusted performance measure. It divides return by a measure of how much the portfolio typically falls from peak to trough, rewarding strategies that deliver return without big drops. The tool shows two versions: the modern one, using excess return over the risk-free rate divided by the average drawdown, and the original Deane Sterling Jones form, which adds a ten percent constant to the denominator. Enter the annualized return, the risk-free rate and the average annual maximum drawdown.
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Computes the Burke ratio: the excess return over the risk-free rate divided by the square root of the sum of squared drawdowns. Unlike the Sharpe ratio, which penalizes all volatility, Burke focuses only on the falls, and by squaring each drawdown it punishes deep falls more than shallow ones. It's one of the tail-risk-adjusted performance metrics. Enter the portfolio return, the risk-free rate and the list of drawdowns in percent.
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Down Capture Ratio
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The results provided by this tool are for general informational and educational purposes only and do not constitute professional, financial, medical, legal, tax or accounting advice. Always confirm important decisions with a qualified professional and official sources.