Beta and Rsquared are two related, but different, measures. A mutual fund with a high Rsquared correlates highly with a benchmark. If the beta is also high, it may produce higher returns than the benchmark, particularly in bull markets. Rsquared measures how closely each change in the price of an asset is correlated to a benchmark. Beta measures how large those price changes are in relation to a benchmark. Used together, Rsquared and beta give investors a thorough picture of the performance of asset managers.
RSquared Measures How Performance Matches a Benchmark
Rsquared is a measure of the percentage of an asset or fund's performance as a result of a benchmark. It is reported as a number between 0 and 100. A hypothetical mutual fund with an Rsquared of 0 has no correlation to its benchmark at all. A mutual fund with an Rsquared of 100 matches the performance of its benchmark precisely.
Beta is a measure of a fund or asset's sensitivity to the correlated moves of a benchmark. A mutual fund with a beta of 1.0 is exactly as sensitive, or volatile, as its benchmark. A fund with a beta of 0.80 is 20% less sensitive or volatile, and a fund with a beta of 1.20 is 20% more sensitive or volatile.
Alpha is a third measure, which measures asset managers' ability to capture profit when a benchmark is also profiting. Alpha is reported as a number less than, equal to, or greater than 1.0. The higher a manager's alpha, the greater his or her ability to profit from moves in the underlying benchmark. Some topperforming hedge fund managers have achieved shortterm alphas as high as 5 or more using the Standard & Poor's 500 Index as a benchmark.
The alpha and beta of assets with Rsquared figures below 50 are thought to be unreliable because the assets are not correlated enough to make a worthwhile comparison. A low Rsquared or beta does not necessarily make an investment a poor choice, it merely means its performance is statistically unrelated to its benchmark. (For related reading, see: Understanding Volatility Measurements.)

What is the formula for calculating beta?
Learn about beta, how to calculate it, and how it's used as a risk measure with examples that include Apple and Tesla Inc. Read Answer >> 
How does my insurance company determine what premiums I have to pay for coverage?
Learn about some of the quantitative finance measures that investors without a strong math background can use in analyzing ... Read Answer >> 
Why should I register as a Limited Liability Company (LLC) if I am selfemployed ...
Understand the difference between a company's levered beta and unlevered beta. Learn how debt affects a company's levered ... Read Answer >> 
When is it better to use unlevered beta than levered beta?
Understand what a security's unlevered beta and levered beta measure, and learn which one is more accurate in measuring a ... Read Answer >>

Investing
Understanding Volatility Measurements
How do you choose a fund with an optimal riskreward combination? Here we teach you about standard deviation, beta and more. 
Investing
3 Cases When Beta Does Not Measure Volatility of Stocks
Examine the theoretical and statistical relationship between beta and volatility to identify three factors that limit beta's explanatory value. 
Financial Advisor
Does Your Investment Manager Measure Up?
These key stats will reveal whether your advisor is a league leader or a benchwarmer. 
Investing
PRHSX: Risk Statistics of Health Sciences Mutual Fund
Examine the risk metric of the T. Rowe Price Health Sciences Fund. Analyze beta, capture ratios and standard deviation to assess volatility and systematic risk. 
Investing
How Investment Risk Is Quantified
FInancial advisors and wealth management firms use a variety of tools based in modern portfolio theory to quantify investment risk. 
Financial Advisor
Calculating Beta: Portfolio Math For The Average Investor
Beta is a useful tool for calculating risk, but the formulas provided online aren't specific to you. Learn how to make your own. 
Investing
Alpha and Beta for Beginners
Alpha and beta are both risk ratios that investors use as a tool to calculate, compare and predict returns. Here is an indepth look at what alpha and beta are and what they measure. 
Investing
Beta: Gauging Price Fluctuations
Learn how to properly use this measure that can help you meet your criteria for risk. 
Investing
FSPHX: Fidelity’s Mutual Fund for Health Care or Medicine
Analyze the risk metrics of FSPHX. Find out what beta, standard deviation and Rsquared imply about volatility and market correlation. 
Investing
Beta: Know the Risk
Beta says something about measuring price risk in stocks, but how much does it say about fundamental risk factors too?

Beta
Beta is a measure of the volatility, or systematic risk, of a ... 
Portable Alpha
Portable alpha is a strategy in which portfolio managers separate ... 
International Beta
Better known as "global beta", international beta is a measure ... 
Smart Beta
Smart beta investing combines the benefits of passive investing ... 
Excess Returns
Excess returns, also known as alpha, measure the percentage that ... 
Active Risk
Active risk is a type of risk that a fund or managed portfolio ...