R-Squared

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What is 'R-Squared'

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. For fixed-income securities, the benchmark is the T-bill. For equities, the benchmark is the S&P 500.

BREAKING DOWN 'R-Squared'

R-squared values range from 0 to 100. An R-squared of 100 means that all movements of a security are completely explained by movements in the index. A high R-squared (between 85 and 100) indicates the fund's performance patterns have been in line with the index. A fund with a low R-squared (70 or less) doesn't act much like the index.

A higher R-squared value will indicate a more useful beta figure. For example, if a fund has an R-squared value of close to 100 but has a beta below 1, it is most likely offering higher risk-adjusted returns. A low R-squared means you should ignore the beta.

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RELATED FAQS
  1. Where do funds report their r-squared?

    Learn where to find R-squared calculations for mutual funds. Explore R-squared, Alpha and Beta and how these calculations ... Read Answer >>
  2. What's the difference between r-squared and adjusted r-squared?

    Learn how R-squared and adjusted R-squared values differ, how they are calculated, the relationship between them and how ... Read Answer >>
  3. What's the relationship between r squared and beta?

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  4. What's the difference between r-squared and correlation?

    Discover how R-squared calculations determine the practical usefulness of beta and alpha correlations between individual ... Read Answer >>
  5. How is correlation used to measure volatility?

    See how the correlation between an asset and its benchmark index can be used as a proxy to determine the relative volatility ... Read Answer >>
  6. How do you calculate r-squared in Excel?

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