R-Squared
📈 Investing
Quick Definition
R-Squared is a statistical measure that represents the percentage of a fund or security's movements that can be explained by movements in a benchmark index.
Formula
R^2 = 1 - (Sum of Squared Residuals / Total Sum of Squares)Examples
- 1An R-Squared value close to 100 indicates that most of the security's movements are explained by movements in the index it is compared to.
- 2A mutual fund with an R-Squared value of 85 with respect to the S&P 500 suggests that 85% of the fund's performance can be explained by trends in the S&P 500.
- 3A low R-Squared value (e.g., 30) for a stock indicates that its performance is largely independent of the movements of the overall market.
- 4Investors might look for high R-Squared values when choosing index funds to ensure they closely mimic the performance of the benchmark.
Tags
R-Squaredinvestment analysisportfolio managementrisk assessmentstatistical measure
Related Terms
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Standard Deviation
Standard deviation is a statistical measure that quantifies the amount of variation or dispersion of a set of values.
Quick Info
Category:Investing
Difficulty:intermediate
Last Updated:6/20/2025