The appraisal ratio - another way of looking at risk

The appraisal ratio is the alpha of an investment strategy divided by the unsystematic risk of the strategy relative to the benchmark. Take the investment return and run a linear regression against a benchmark like SPX. The regression will generate a beta, an alpha, and a residual error which is the unsystematic risk not associated with alpha or beta. The ratio then just looks at how much alpha is generated versus the unsystematic risk. A higher appraisal rate means that the manager can generate more return versus risk unassociated with beta. It is the manger's skill relative to the risk taken adjusted for beta.

The appraisal ratio can be compared with the information ratio which is the strategy return minus a benchmark (excess return) versus the standard deviation of the tracking error.  

Both measures attempt to measure sill versus a benchmark excess or tracking risk measure.