R Squared Definition

Below please find a definition of “R Squared”

Financial Analysis Training & Glossary TermsR Squared: Are you looking for the definition of R Squared or an interpretation for the R Squared value for your hedge fund or other type of investment portfolio? Here is a quick run down on what R Squared is…

R-Squared = coefficient in a statistical analysis that allows the observer to see how effective one variable is at forecasting another variable. The higher the R-squared the more effective one variable is at forecasting another. If the R-Squared is 0.0 then one variable has nothing in common with the other. To simplify, an example where R- Squared would be zero is that the population of the United States has nothing to do with what the type of food the population of likes to eat. On the other hand an example of a higher R-Squared could be correlation of gas price to number of fuel efficient automobiles sold. R squared is used to show correlation between a single or group of variables and a specific outcome. The higher the R Squared = the greater the correlation between the variables and the outcome.

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