R-Squared

R-squared is a statistical value representing the percentage of the movement in the price of an asset which can be explained by the movements of an underlying index. The value of R-squared can range from 0 to 100 (i.e. 100 means 100% of the asset movement is explained by the index, 0 meaning none of it is).

Higher values of R-squared mean that beta is more useful and should be considered. An asset with an extremely high R-squared and a low beta (<1) will provide higher risk-adjusted returns.

Free Resources

To continue learning and advancing your career, check out these additional helpful WSO resources:

• Retained Earnings
• Fraud Triangle
• Accounts Receivable Turnover Ratio
• Marginal Cost Formula
• Nash Equilibrium