Hedge Fund Consistency Index, Hedge Funds Research
 Midwest Office: 641-472-7373 Ext.112
 News Books Scholarly Definitions

FREE ACCESS!
Subscribe for
Free Access
to over 4000+ pages of Profiles and Top 20 Rankings. No obligation ever.

 User Name: Password:

 R-Squared see also: alpha and beta CONTRIBUTE articles, books, comments, links, news, and/or scholarly or white papers - by clicking
 1. In statistics, the coefficient of determination R2 is the proportion of variability in a data set that is accounted for by a statistical model. In this definition, the term "variability" is defined as the sum of squares. There are equivalent expressions for R2 based on an analysis of variance decomposition. Other Resources: Measures the degree of explanation that can be made about movement in the fund by a movement in the benchmark. More…   A measurement of how closely a fund's performance correlates with an index. More…   A numerical value indicating the correlation between a fund and a benchmark. Its value can range from zero to one. More…   Contribute to this section by clicking                    top 2. Adjusted R-square is a modification of R-square that adjusts for the number of terms in a model. R-square always increases when a new term is added to a model, but adjusted R-square increases only if the new term improves the model more than would be expected by chance.  Contribute to this section by clicking                    top 3. Formula A general version, based on comparing the variability of the estimation errors with the variability of the original values, is ${R^{2} = {1-{SS_E \over SS_T}}}.$ Another version is common in statistics texts but holds only if the modeled values are obtained by ordinary least squares regression (which must include a fitted intercept or constant term): it is ${R^{2} = {SS_R \over SS_T} }.$ In the above definitions, $SS_T=\sum_i (y_i-\bar{y})^2, SS_R=\sum_i (\hat{y_i}-\bar{y})^2, SS_E=\sum_i (y_i - \hat{y_i})^2,$ where ${y_i},\hat{y_i}$ are the original data values and modeled values respectively. That is, SST is the total sum of squares, SSR is the regression sum of squares, and SSE is the sum of squared errors. In some texts, the abbreviations SSR and SSE have the opposite meaning: SSR stands for the residual sum of squares (which then refers to the sum of squared errors in the upper example) and SSE stands for the explained sum of squares (another name for the regression sum of squares). In the second definition, R2 is the ratio of the variability of the modeled values to the variability of the original data values. Another version of the definition, which again only holds if the modeled values are obtained by ordinary least squares regression, gives R2 as the square of the correlation coefficient between the original and modeled data values.   Other Resources: A mathematical term describing how much variation is being explained by the X. More…   Contribute to this section by clicking                    top 4. Related Terms Alpha Beta Benchmark Index T-Bill Relative Volatility Market Neutral Modern Portfolio Theory Correlation Correlation Coefficient CAPM   Contribute to this section by clicking                    top 5. As Used in the Hedge Fund World Other Resources: A measure of the degree to which a hedge fund's returns are correlated to the broader financial market. The result is used to determine whether a hedge fund follows a market-neutral investment strategy. Contribute to this section by clicking                    top 6. Applications R2 is a statistic that will give some information about the goodness of fit of a model. In regression, the R2 coefficient of determination is a statistical measure of how well the regression line approximates the real data points. An R2 of 1.0 indicates that the regression line perfectly fits the data. In some (but not all) instances where R2 is used, the predictors are calculated by ordinary least-squares regression: that is, by minimizing SSE. In this case R-squared increases as we increase the number of variables in the model (R-squared will not decrease). This illustrates a drawback to one possible use of R2, where one might try to include more variables in the model until "there is no more improvement". This leads to the alternative approach of looking at the adjusted R2. The explanation of this statistic is almost the same as R-squared but it penalizes the statistic as extra variables are included in the model. For cases other than fitting by ordinary least squares, the R2 statistic can be calculated as above and may still be a useful measure. However, the conclusion that that R-squared increases with extra variables no longer holds, but downward variations are usually small. If fitting is by weighted least squares or generalized least squares, alternative versions of R2 can be calculated appropriate to those statistical frameworks, while the "raw" R2 may still be useful if it is more easily interpreted. Values for R2 can be calculated for any type of predictive model, which need not have a statistical basis. Other Resources: R-squared ranges from 0 to 100 and reflects the percentage of a fund's movements that are explained by movements in its benchmark index.   R-squared can also be used to ascertain the significance of a particular beta or alpha. Generally, a higher R-squared indicates a more reliable beta figure. If the R-squared is lower, then the beta is less relevant to the fund's performance.   Contribute to this section by clicking                    top 7. Misused & Abused If an R-Squared value is low, and it is used as an inappropriate benchmark in finding Beta, the concluding figure cannot be trusted; and since Alpha is directly calculated using Beta, the Alpha figure will also be erroneous. Contribute to this section by clicking                    top 8.

Back to Terms

 News Books Scholarly Definitions

 HEDGE FUND RISK AND OTHER DISCLOSURES Hedge funds, including fund of funds (“Hedge Funds”), are unregistered private investment partnerships, funds or pools that may invest and trade in many different markets, strategies and instruments (including securities, non-securities and derivatives) and are NOT subject to the same regulatory requirements as mutual funds, including mutual fund requirements to provide certain periodic and standardized pricing and valuation information to investors. There are substantial risks in investing in Hedge Funds. Persons interested in investing in Hedge Funds should carefully note the following: Hedge Funds represent speculative investments and involve a high degree of risk. An investor could lose all or a substantial portion of his/her investment. Investors must have the financial ability, sophistication/experience and willingness to bear the risks of an investment in a Hedge Fund. An investment in a Hedge Fund should be discretionary capital set aside strictly for speculative purposes. An investment in a Hedge Fund is not suitable or desirable for all investors. Only qualified eligible investors may invest in Hedge Funds. Hedge Fund offering documents are not reviewed or approved by federal or state regulators Hedge Funds may be leveraged (including highly leveraged) and a Hedge Fund’s performance may be volatile An investment in a Hedge Fund may be illiquid and there may be significant restrictions on transferring interests in a Hedge Fund. There is no secondary market for an investor’s investment in a Hedge Fund and none is expected to develop. A Hedge Fund may have little or no operating history or performance and may use hypothetical or pro forma performance which may not reflect actual trading done by the manager or advisor and should be reviewed carefully. Investors should not place undue reliance on hypothetical or pro forma performance. A Hedge Fund’s manager or advisor has total trading authority over the Hedge Fund. A Hedge Fund may use a single advisor or employ a single strategy, which could mean a lack of diversification and higher risk. A Hedge Fund (for example, a fund of funds) and its managers or advisors may rely on the trading expertise and experience of third-party managers or advisors, the identity of which may not be disclosed to investors A Hedge Fund may involve a complex tax structure, which should be reviewed carefully. A Hedge Fund may involve structures or strategies that may cause delays in important tax information being sent to investors. A Hedge Fund may provide no transparency regarding its underlying investments (including sub-funds in a fund of funds structure) to investors. If this is the case, there will be no way for an investor to monitor the specific investments made by the Hedge Fund or, in a fund of funds structure, to know whether the sub-fund investments are consistent with the Hedge Fund’s investment strategy or risk levels. A Hedge Fund may execute a substantial portion of trades on foreign exchanges or over-the-counter markets, which could mean higher risk. A Hedge Fund’s fees and expenses-which may be substantial regardless of any positive return- will offset the Hedge Fund’s trading profits. In a fund of funds or similar structure, fees are generally charged at the fund as well as the sub-fund levels; therefore fees charged investors will be higher that those charged if the investor invested directly in the sub-fund(s). Hedge Funds are not required to provide periodic pricing or valuation information to investors. Hedge Funds and their managers/advisors may be subject to various conflicts of interest. The above general summary is not a complete list of the risks and other important disclosures involved in investing in Hedge Funds and, with respect to any particular Hedge Fund, is subject to the more complete and specific disclosures contained in such Hedge Fund’s respective offering documents. Before making any investment, an investor should thoroughly review a Hedge Fund’s offering documents with the investor’s financial, legal and tax advisor to determine whether an investment in the Hedge Fund is suitable for the investor in light of the investor’s investment objectives, financial circumstances and tax situation. All performance information is believed to be net of applicable fees unless otherwise specifically noted. No representation is made that any fund will or is likely to achieve its objectives or that any investor will or is likely to achieve results comparable to those shown or will make any profit at all or will be able to avoid incurring substantial losses. Past performance is not necessarily indicative, and is no guarantee, of future results. The information on the Site is intended for informational, educational and research purposes only. Nothing on this Site is intended to be, nor should it be construed or used as, financial, legal, tax or investment advice, be an opinion of the appropriateness or suitability of an investment, or intended to be an offer, or the solicitation of any offer, to buy or sell any security or an endorsement or inducement to invest with any fund or fund manager. No such offer or solicitation may be made prior to the delivery of appropriate offering documents to qualified investors. Before making any investment, you should thoroughly review the particular fund’s confidential offering documents with your financial, legal and tax advisor and conduct such due diligence as you (and they) deem appropriate. We do not provide investment advice and no information or material on the Site is to be relied upon for the purpose of making investment or other decisions. Accordingly, we assume no responsibility or liability for a ny investment decisions or advice, treatment, or services rendered by any investor or any person or entity mentioned, featured on or linked to the Site. The information on this Site is as of the date(s) indicated, is not a complete description of any fund, and is subject to the more complete disclosures and terms and conditions contained in a particular fund's offering documents, which may be obtained directly from the fund. Certain of the information, including investment returns, valuations, fund targets and strategies, has been supplied by the funds or their agents, and other third parties, and although believed to be reliable, has not been independently verified and its completeness and accuracy cannot be guaranteed. No warranty, express or implied, representation or guarantee is made as to the accuracy, validity, timeliness, completeness or suitability of this information. Any indices and other financial benchmarks shown are provided for illustrative purposes only, are unmanaged, reflect reinvestment of income and dividends and do not reflect the impact of advisory fees. Investors cannot invest directly in an index. Comparisons to indexes have limitations because indexes have volatility and other material characteristics that may differ from a particular hedge fund. For example, a hedge fund may typically hold substantially fewer securities than are contained in an index. Indices also may contain securities or types of securities that are not comparable to those traded by a hedge fund. Therefore, a hedge fund’s performance may differ substantially from the performance of an index. Because of these differences, indexes should not be relied upon as an accurate measure of comparison.

 |  Privacy Notice  |  Industry Links  |  Terms Of Use  |  Hedge Fund Data Licensed to Mt. Rushmore Securities LLC by Barclay Trading Group, Ltd. © Mt. Rushmore Securities LLC, Member NASD, SIPC