## What is a 'Residual Sum Of Squares - RSS'

A residual sum of squares (RSS) is a statistical technique used to measure the amount of variance in a data set that is not explained by a regression model. The residual sum of squares is a measure of the amount of error remaining between the regression function and the data set. A smaller residual sum of squares figure represents a regression function which explains a greater amount of the data.

Next Up

## BREAKING DOWN 'Residual Sum Of Squares - RSS'

It is not possible to draw conclusions about the correctness of the regression function solely using the residual sum of squares. Since a sufficiently complex regression function can be made to closely fit virtually any data set, further study is necessary to determine whether the regression function is, in fact, useful in explaining the variance of the dataset. Typically, however, a smaller residual sum of squares is ideal.

Financial markets have increasingly become more quantitatively driven, as such, in search of an edge, many investors are using advanced statistical techniques to aid in their decisions. Big data, machine learning, and artificial intelligence applications further necessitate the use of statistical properties to guide contemporary investment strategies.

The residual sum of squares in one of many statistical properties enjoying a renaissance.

RELATED TERMS
1. ### Residual Income

Residual income is the amount of net income generated in excess ...
2. ### Residual Value

Residual value is the value of an asset at the end of its lease ...
3. ### Least Squares Method

The least squares method is a statistical technique to determine ...
4. ### Error Term

An error term is a variable in a statistical model, which is ...
5. ### Stepwise Regression

Stepwise regression is the step-by-step iterative construction ...
6. ### Residual Equity Theory

Residual equity theory assumes common shareholders to be the ...
Related Articles
1. Investing

### Valuing A Company Using The Residual Income Method

Learn the underlying basics behind the residual income model and how it can be used to place an absolute value on a firm.
2. Investing

### Regression Basics For Business Analysis

This tool is easy to use and can provide valuable information on financial analysis and forecasting. Find out how.

### Active Risk vs. Residual Risk: Differences and Examples

Active risk and residual risk are common risk measurements in portfolio management. This article discusses them, their calculations and their main differences.
4. Tech

### Square Surpasses \$1B in Business Loans (SQ)

Square reported Q3 software and data product revenue up 140% over last year, as Square Capital opens up and builds out with an array of new partnerships.
5. Tech

### How Square Cash Works and Makes Money

Square Inc. has rapidly grown into one of the largest payment processing companies in the United States, and here's how it makes money.
6. Tech

### What is Square, Inc?

Find out how Square helps small businesses accept credit cards, track sales and inventory through their mobile point of sale (POS) systems.
7. Tech

### How Risky is Jack Dorsey’s Square? (SQ)

Square is hedging against rising competitive risk and a possible economic downturn by expanding software services and pushing for digitalization.
8. Tech

### Fintech Leader Square Posts Q3 Earnings Beat (SQ)

Jack Dorsey's payments and financial services platform celebrates one year on the public markets with an earnings beat, securing revenue growth of 32% YOY.
9. Tech

### How Square Inc. Transformed in 2016

Jack Dorsey's fintech platform saw rapid growth in Square Capital and with larger sellers.

### The linear regression of time and price

This investment strategy can help investors be successful by identifying price trends while eliminating human bias.
RELATED FAQS
1. ### How is residual value of assets taxed?

Find out how and when taxes are assessed on the different kinds of residual value, including the residual value on a leased ... Read Answer >>
2. ### How is residual value of an asset determined?

Understand what the residual value of an asset is and how the residual value of an asset is calculated. Learn how residual ... Read Answer >>
3. ### In what types of economies are regressive taxes common?

Understand the three main taxation systems, regressive, proportionate and progressive, and learn where regressive tax systems ... Read Answer >>
4. ### How do you calculate variance in Excel?

To calculate statistical variance in Microsoft Excel, use the built-in Excel function VAR. Read Answer >>
5. ### Is variance good or bad for stock investors?

Learn how high variance stocks are good for some investors and how diversified portfolios can reduce variance without compromising ... Read Answer >>
Hot Definitions

The business cycle describes the rise and fall in production output of goods and services in an economy. Business cycles ...
2. ### Futures Contract

An agreement to buy or sell the underlying commodity or asset at a specific price at a future date.
3. ### Yield Curve

A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
4. ### Portfolio

A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
5. ### Gross Profit

Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
6. ### Diversification

Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...