R-Squared is a measure of how well the performance of an investment or portfolio correlates with the performance of the benchmark. R-Squared is similar to correlation, and can be used to help determine the significance of alpha and beta.
See the Benchmark Dialog to specify which benchmark to use. A benchmark must be assigned before r-squared calculations can be made.
R-squared varies between 0 and 1.0, where 1.0 indicates the investment/portfolio correlate perfectly with the benchmark performance.
When calculating the r-squared of an investment the simple monthly returns over the specified comparison period are calculated. The simple monthly return is:
Return = (End_price + Dist_per_share - Start_price) / Start_price
The returns for both the investment and benchmark are calculated. If the comparison period is 5 years, there are 60 monthly returns for each the investment and the benchmark. R-squared is calculated as the square of the correlation of these returns. See correlation for more specifics on the formula used.
The r-squared for a portfolio, asset type, goal, sector, or investment type is determined by calculating returns from a weighted average of the investments in that group. The weighting is based on the ending value.
Fund Manager can output the data points used in this calculation to a log file. By default the logging feature is turned off. To turn it on, create a new registry string value at:
HKEY_CURRENT_USER\Software\Beiley Software\Fund Manager\CurrentVersion\techanal
named "benchmarklog" and set it to a value of "1". The log file is named "stats_log.txt", and will be located in your user's AppData\Roaming\Fund Manager folder (usually a hidden folder). This log file is deleted upon exiting Fund Manager.
Standard Deviation of Returns