Definitions for

**"R-Squared"****Related Terms:**R squared, Tracking error, Alpha coefficient, Alpha, Relative volatility, Standard deviation, Information ratio, Beta coefficient, Sharpe ratio, Benchmark index, Sortino ratio, Efficient frontier, Performance, Beta, Benchmark portfolio, Absolute return, Coefficient of variation, Correlation, Expected return, Coefficient of determination, Value-at-risk, Average, Variance, Risk-adjusted return, Benchmark, Volatility, Correlation coefficient, Value at risk, Dispersion, Capital asset pricing model, Correlated, Correlation, Index, Indexing, Modern portfolio theory, Variability, Active risk, Risk adjusted return, Profitability ratios, Lognormal distribution, Coefficient of correlation, Optimal portfolio, Roi, Covariance, Mean reversion, Investment risk, Capital market line, Horizon analysis, Required rate of return

A correlation measurement showing the volatility(in %) of a portfolio's returns that can be explained by returns (i.e. movement) on the market portfolio (i.e. S&P 500).

Measure of the fluctuations in a mutual fund's value compared to fluctuations in its benchmark (such as the S&P 500 or other market ). If a portfolio performs exactly the same as its benchmark, its R-squared would be expressed as either 1.0 or 100; if there is no correlation in performance, the portfolio's R-squared would be 0. Large, highly diversified funds have high R-squared values. R-squared, along with alpha and beta, are key components of Modern Portfolio Theory. You can look up the R-squared value for a fund in the Vision Mutual Fund Center, and you can also use it as a mutual fund screening criterion. See also Sharpe ratio.

A statistic that is used in measuring investment risk or volatility with regards the degree to which a fund's past performance was affected by the returns of a specific market benchmark.

Measures the percentage of a fund's movements that can be explained by movements in a benchmark index, usually the S&P 500. An R-squared of 100 means that all movements of a fund are completely explained by movements in the index. Conversely, a low R-squared indicates that very few of the fund's movements are explained by movements in its benchmark index.

A measure of a fund's correlation to the market calculated by comparing monthly returns over the past three years to those of a benchmark. The benchmark for equity funds is the S&P 500. For fixed-income funds, it is the T-bill. The R-squared number ranges from zero to 100. A score of 100 means a perfect correlation with the benchmark. A score of 85 means an 85% correlation. Generally, a higher R-squared will indicate a more useful beta figure. For instance, if a fund is earning a return near its most closely related index (indicated by an R-squared near 100), yet has a beta below one, it is probably offering higher risk-adjusted returns than the benchmark. If the R-squared is lower, then the beta is less relevant to the fund's performance. Also, see Alpha.

R-squared measures how much a fund's past returns can be explained by the returns from its benchmark index. If a fund's total returns were precisely synchronized with the index's return, its R-squared would be 1.00 (100%). If a fund's return bore no relationship to the index's return, its R-squared would be 0. The higher the R-squared, the more the fund's return can be explained by the performance of the index, and so the performance of the market or market segment. The lower the R-squared, the more return can be explained by the fund manger's decisions.

A measurement of how closely a portfolio's performance correlates with the performance of a benchmark , such as the S&P 500, and thus a measurement of what portion of its performance can be explained by the performance of the overall market or index. Ranges from 0 to 1 (or 100), where 0 indicates no correlation and 1 (or 100) indicates perfect correlation. see also relative volatility, modern portfolio theory.

Is a measure of the degree that a hedge funds returns are reflected to the overall financial market.

A measure of diversification that indicates the extent to which fluctuations in portfolio returns are explained by market action. An R2 of 0.75 implies that 75% of the fluctuation in a portfolio's return is explained by the fluctuation in the market.

A number between 0 and 1 that measures how well a model fits its training data. One is a perfect fit; however, zero implies the model has no predictive ability. It is computed as the covariance between the predicted and observed values divided by the standard deviations of the predicted and observed values.

Measure of correlation of returns between two equity mutual funds. Usually expressed as a percentage, it defines the percentage of one fund's performance which can be correlated with, or be explained by, the performance of another fund. Funds with high r-squareds can be expected to perform similarly. Most fund reporting services calculate an r-squared between a particular fund and the S&P 500 index. However, calculations of r-squared between any two funds, not just the index, help investors find funds which will diversify a portfolio.

A statistical measure that represents the percentage of a fund's or security's movements that are explained by movements in a benchmark index. It's computed via ordinary least squared regression analysis. Values for r-squared range from 0 to 1, where 0 indicates no correlation and 1 indicates perfect correlation.

Where the beta coefficient to measure volatility, R-squared measures the reliability of the information used to determine beta. The lower the R-squared figure (on a scale of 1 - 100), the less reliable the information.

The percentage of a mutual fund's movement that are explained by movements in its benchmark index. An R-Squared on 100 means that all movements of a fund are completely explained by movements in the index. For example, a S & P 500 Index fund would have an R-Squared of 100.

A numerical value indicating the correlation between a fund and a benchmark. Its value can range from zero to one. For example, if a fund has an R-squared value of close to 1, yet has a beta below 1, it is most likely offering higher risk-adjusted returns. See also Beta and Alpha.

R-squared represents the percentage of a fund's movements that are explained by movements in its benchmark index and ranges from 0 to 100. If movements of a fund are completely explained by movements in the index, the R-squared would be 100. If few of the fund's movements are explained by movements in its benchmark index, then it would have a low R-squared. R-squared can be used to determine the significance of a particular beta or alpha. A higher R-squared will be a more useful beta figure and a lower R-squared would have a beta figure that is less relevant to the fund's performance.

A measure of how much of a fund's past returns can be explained by the returns from the market overall.

The degree to which an asset's correlation with "the market" has explained its fluctuations over a specified period of time. Alpha and beta coefficients are calculated using a procedure known as "regression analysis," where points in a system of coordinates are generated by measuring "market" movements (the "independent variable") along the horizontal "X" axis and correlating them with movements in the asset (the "dependent variable") measured along the vertical "Y" axis. If the plot points clearly defines a straight line, the model will have an R-squared value of close to 1.0, meaning that fluctuations in the market explain close to 100% of the relative volatility in the asset. If the pattern of plot points is largely random, the R-squared value will be near zero, meaning that fluctuations in the market explain virtually nothing about fluctuations in the asset.

A measure of how much of a portfolio's performance can be explained by the returns from the overall market (or a benchmark index). If a portfolio's total return precisely matched that of the overall market or benchmark, its R-squared would be 1.00. If a portfolio's return bore no relationship to the market's returns, its R-squared would be 0.

Reflects the percentage of a fund's price movements that can be explained by movements in its benchmark index. An R-squared of 100 indicates that all movements of a fund can be explained by movements in the index. A low R-squared indicates that very few of the fund's movements can be explained by movements in its benchmark index.

A statistic employed in regression analysis that measures how much variance has been explained by the regression model. Specifically, it is the proportion of the total variability (variance) in the dependent variable that can be explained by the independent variables. R-squared is also employed as a measure of goodness of fit of the model. R-squared ranges from 0% to 100%. If all the observations fall on the regression line, R-squared is equal to 100%. The variability in the dependent variable is partitioned into two component sums of squares: variability explained by the regression model and unexplained variation. To calculate R-squared, you divide the regression sums of squares by the total sums of squares. In a simple regression, R-squared can also be obtained by squaring the correlation coefficient.

Statistical measurement that represents the percentage of a fund's movements that correspond to movements in a benchmark. These values range from 0 to 1. A high value indicates a more useful beta figure while a low value is insignificant.

R2 is a statistical tool that measures the degree to which a fund's behaviour or performance "character" is related to an external benchmark. For example, an equity fund with an R2 of 86 relative to the S&P 500 Index records that 86% of the fund's historical behaviour was attributable to movements in the S&P 500 Index.

A portfolio’s percentage of its total return as set against market movements.

The percentage of a portfolio's total return explained by market movements.

A statistical measure that represents the percentage of a fund's or security's movements that are explained by movements in a benchmark index. For fixed-income securities the benchmark is the T-bill, and for equities the benchmark is the S&P 500.

The R-squared statistic, whose value falls between 0 and 1, indicates the strength of the relationship between an investment and the market, and the degree to which other statistics describing the behavior of the investment, such as the Beta, are reliable. One could say that the R-squared statistic would determine the end to be applied to the following statement: "My investment has a Beta of 1.5, which indicates that market moves are amplified by 1.5. A 10% rise in the market will cause a 15% rise in my investment...". As the R2 increases towards 1, the statement's end would change from "on average, with a considerable degree of error," to "most of the time," to "nearly always," to "with near certainty," to "in all cases."

This number indicates what percentage of fluctuation in a fund's performance can be explained by movements in the benchmark index. R-squared is quoted in a range from 0 to 100. An R-squared of 100 would mean that the fund is tracking its benchmark exactly. A low R-squared indicates that very few of the fund's movements are explained by movements of its benchmark. R-squared can also help determine the significance of a fund's beta. A higher R-squared generally indicates a more statistically significant beta. A lower R-squared means a fund's beta is less meaningful.

A measure of the degree to which a hedge fund's returns are correlated to the broader financial market. A figure of 1 would be a perfect correlation, while 0 would be no correlation and minus-1 would be a perfect inverse correlation. Any figure below 0.3 is considered non-correlated. The result is used to determine whether a hedge fund follows a market-neutral investment strategy. Sometimes referred to as "R."

A statistic which indicates how much of a fund's fluctuations were attributable to movements in the fund's benchmark index. R-Squared ranges between 0 percent and 100 percent, which would indicate that 100% of the movements in a fund were completely explained by movements in the benchmark index.

A coefficient (R2) of a value between -1 and +1 indicating correlation to a benchmark index. See also Correlation.