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Dominick:
R2 (r-squared) is a statistical term that defines the degree of correlation
between 2 variables over a given number of data points. As Anthony correctly
stated, the closer the R2 is to 1, the better the correlation is. You stated
that if a fund had an R2 of 80 (actually, 0.80), that meant 80% of the fund's
movement is due to the index. This is technically not correct. It really means
that 80% of the variability around the data can be explained or accounted for by
the index. The other 20% of the variability is explained either by random noise
or other factors that you have not evaluated. The less the variability is, i.e.,
the closer the data are to the regression line, the higher the r-squared term
is, and therefore the greater the degree of variability that can
be explained by the independent variable, in this case, the index. It does
not necessarily establish cause and effect, although you may infer such
causality if you want to. You just have to be careful when you do so. For
example, if you conduct a regression of the closing price of INTC with the price
of Japanese silk cocoons and find an R2 of 0.95, would you conclude that Intel's
stock price is determined by the price of Japanese silk cocoons? However, if you
compare the NDX with the QQQ and find an R2 of 0.95, it is likely safe to say
that such a correlation has causality because they both derive their variation
from the same population of data. I cannot comment on the beta that you are
referring to because I'm not that familiar with it.
Al V.
<BLOCKQUOTE
>
----- Original Message -----
<DIV
>From:
dom1_1998
<dominick@xxxxxxx>
To: <A title=amibroker@xxxxxxxxxxxxxxx
href="">amibroker@xxxxxxxxxxxxxxx
Sent: Saturday, February 15, 2003 10:00
AM
Subject: Re: [amibroker] r-squared and
regression analysis
Hi Anthony:When I used to subscribe to Morningstar
which rated mutual funds, themeaing of R2 referred to how much of the
mutual fund point movementwas due to its comparative index, usually the
S&P 500. If the fundhad an R2 of 80, that meant 80 percent of
the funds movement will bedue to the index. The
other 20% was attributed to the individualcharacteristics of that
fund.You would think the above would have been beta but it's
not.Is your R2 and the one above the same? If not could a code be
writtento determine the R2 for a set number of
periods?TIA,Dominick Post
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