Generally speaking, the R-Squared (R2) of a manager versus a benchmark is a measure of how closely related the variance of the manager returns and the variance of the benchmark returns are. If the benchmark is a Style Benchmark, this can be rephrased by saying: The R2 is a measure of how well the variance of the Style Benchmark explains the variance of the manager.
StyleADVISOR uses three different definitions of R2. The R2 Definitions in the Advanced Parameters tab in the Edit Analysis Parameters dialog allows the user to select one of the three definitions. The Performance Attribution graph will display the type of R2 that the user has chosen. Similarly, the column “Explained Variance” in the Performance table will display the chosen type of R2. By contrast, the columns labeled “R-Squared” in the Risk Return and Up-Down tables always display correlation squared.
Related Statistics:
Style Analysis
Correlation Squared
Variance Explained
Adjusted R-Squared
