R-Squared

R-Squared

In statistics, the percentage of a portfolio's performance explainable by the performance of a benchmark index. The R-squared is measured on a scale of 0 to 100, with a measurement of 100 indicating that the portfolio's performance is entirely determined by the benchmark index, perhaps because it contains securities only from that index. A low R-squared indicates that there is no significant relationship between the portfolio and the index. See also: Beta.

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R-squared. R-squared is a statistical measurement that determines the proportion of a security's return, or the return on a specific portfolio of securities, that can be explained by variations in the stock market, as measured by a benchmark index.

For example, an r-squared of 0.08 shows that 80% of a security's return is the result of changes in the market -- specifically that 80% of its gains are due to market gains and 80% of its losses are due to market losses. The other 20% are the result of factors particular to the security itself.

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R-Squared

What Does R-Squared Mean?

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

Investopedia explains R-Squared

R-squared values range from 0 to 100. An R-squared of 100 means that all the movements of a security are explained completely by movements in the index. A high R-squared (between 85 and 100) indicates that the fund's performance patterns have been in line with the index. A fund with a low R-squared (70 or less) does not move in lockstep with an index. A higher R-squared value indicates a more useful beta figure. For example, if a fund has an R-squared value close to 100 but has a beta below 1, it most likely is offering higher risk-adjusted returns. A low R-squared means that an investor should ignore the beta.

Related Terms:
• Alpha
• Benchmark
• Mutual Fund
• Risk
• Treasury Bill—T-Bill