Coefficient of determination
The share of the dependent variable's variation that a regression explains, from zero to one. In a simple regression it equals the squared correlation, and it says nothing about causation.
Where you will meet it
Coefficient of determination appears in 3 learning outcomes on the CFA syllabus. A few of them:
- Explain what the intercept, slope and coefficient of determination mean
“The coefficient of determination, R-squared, is the proportion of the dependent variable's variation explained by the model, running from zero to one.”
- Work out the standard error of estimate and explain what it shows
“It complements R-squared rather than repeating it: R-squared says what share of variation is explained, and the standard error says how large the remaining errors actually are in the units a decision would be made in.”
- Explain what a simple linear regression's ANOVA table and F-statistic tell you
“R-squared = SSR / SST is the share explained.”
See also
Correlation · Dependent variable
Practise it
Practise coefficient of determination until it is automatic: questions that explain every wrong option.
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