![]() Almost all correlations fall somewhere between these perfect extremes. A coefficient of zero means the two investments have no correlation. Two assets in perfect positive correlation (both always rising) have a correlation value or coefficient of 1 two in perfect negative or inverse correlation (one always falling when the other is rising or vice versa) have a coefficient of -1. In finance and investing, correlation measures how often returns for two investments are moving in the same direction, or the opposite direction, with statistical values known as coefficients of between -1 and 1. ![]() R-squared is derived from r, the symbol used to denote correlation, so it’s simply correlation squared. A statistical model is created to test the degree of relationship between the variables by comparing the actual values of Y (the investment’s returns) on a chart against the predicted returns represented by a line on the chart. R-squared is used to assess how much a change in one variable (call it Y, the investment) is determined by the change in the other variable (call it X, the benchmark or index). ![]() In statistics, the term r-squared is a measure of the relationship between two things, called variables.
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