Definition
The coefficient of determination (r-squared, written r2) measures the proportion of variation in one variable that a linear model (or another variable) explains. For a simple linear relationship between an index (x) and a stock (y), r2 tells you what fraction of y’s variability is captured by a straight-line relationship with x. r2 ranges from 0 to 1 (0%–100%): higher values mean more of y’s variation is explained by x. The correlation coefficient r can be negative or positive; r2 is r squared, so it is always