R-Squared

What does it mean?
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.

In Other Words...
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.

Related Links
Mutual Fund Basics Tutorial - Learn about the basics--and the pitfalls!--of investing in mutual funds.

Related Terms
Benchmark | Beta | Index | Mutual Fund | S&P 500 | Security | T-Bill

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