Ch.10 · Risk Measures and Ratios · hard
What is 'R-squared' (R²) in mutual fund analysis?
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EXPLANATION
R-squared measures the percentage of a fund's return variation that can be explained by movements in its benchmark. R² = 1 (100%) means the fund's returns are perfectly explained by the benchmark (like an index fund). R² = 0.7 means 70% of return variation is explained by the benchmark and 30% by other factors. Lower R² indicates more active/differentiated management.
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