R-Squared
Definition
A statistical measure of how much of a portfolio's movements can be explained by movements in its benchmark index, ranging from 0 to 1.
Explanation
R-squared of 0.85 means 85% of the portfolio's return variation is explained by the benchmark. An S&P 500 index fund has R-squared near 1.0. An actively managed concentrated fund might have R-squared of 0.60-0.70. R-squared helps determine whether a fund is truly actively managed or a 'closet indexer.' A fund with R-squared above 0.95 and active management fees is likely charging for little active management. R-squared should be interpreted alongside alpha — high R-squared with positive alpha means the manager is adding value while staying correlated to the benchmark.
How Stoquity Uses This
Stoquity incorporates r-squared analysis across its portfolio management platform, providing real-time monitoring and AI-powered insights for every portfolio.