Hello, I'm an expert in finance and investment analysis with a particular focus on mutual funds. I'm here to help you understand complex financial concepts such as R-squared in the context of mutual funds. When we talk about R-squared in mutual funds, we're referring to a statistical measure that indicates the degree to which a fund's returns move in line with the returns of its benchmark index. It's a key metric used by investors to evaluate how closely a fund's performance is associated with the performance of the broader market or a specific benchmark that it's designed to track. R-squared is reported as a number between 0 and 100. Here's a breakdown of what the values mean: - An R-squared of 0 indicates that the fund's returns have no correlation with the benchmark. This means the fund's performance is entirely unrelated to the benchmark's performance. - An R-squared of 100 suggests that the fund's returns move perfectly in tandem with the benchmark. In other words, the fund is a clone of the benchmark. - Values between 0 and 100 indicate varying degrees of correlation. For instance, an R-squared of 50 would mean that 50% of the fund's total variation in returns can be explained by the benchmark's performance. It's important to note that R-squared does not measure the quality of a fund's performance, but rather the degree of its alignment with a benchmark. A high R-squared does not necessarily mean a fund is a good investment; it simply means that the fund's performance is closely tied to the benchmark's performance. Investors often use R-squared in conjunction with other metrics, such as the tracking error, which measures the standard deviation of the difference between the fund's returns and the benchmark's returns. A fund with a low tracking error and a high R-squared is considered to be closely tracking its benchmark. In the context of mutual funds, R-squared can be particularly useful for index funds or passively managed funds, which aim to replicate the performance of a specific index. For actively managed funds, where the fund manager is attempting to outperform the benchmark, a lower R-squared might be desirable, indicating that the manager is taking risks that differ from the benchmark in hopes of achieving higher returns. When interpreting R-squared, it's also crucial to consider the time period over which it's calculated. A fund's R-squared can change over time as market conditions evolve and as the fund manager adjusts the portfolio. Lastly, while R-squared is a valuable tool, it's not the only factor to consider when evaluating a mutual fund. Other factors such as the fund's expenses, the manager's investment strategy, and the fund's historical performance are also important. In summary, R-squared for mutual funds is a measure of how closely the fund's performance mirrors that of its benchmark. It provides insight into the fund's correlation with the market but should be used in conjunction with other metrics for a comprehensive evaluation. read more >>

R-Squared Measures How Performance Matches a Benchmark. R-squared is a measure of the percentage of an asset or fund's performance as a result of a benchmark. It is reported as a number between 0 and 100. A hypothetical mutual fund with an R-squared of 0 has no correlation to its benchmark at all.Jan 24, 2018read more >>