R-Squared

R-Squared

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.

Notes:

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 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, yet has a beta below 1, it is most likely offering higher risk-adjusted returns. A low R-squared means you should ignore the beta.

See also: Benchmark, Beta, Index, Mutual Fund, Security, S&P 500, T-Bill