![]() ![]() If R 2 is 0, it means that there is no correlation and independent variable cannot predict the value of the dependent variable. ExplanationĬoefficient of determination, as explained above is the square of the correlation between two data sets. You have also collected information about their historical returns for the last 15 years.Ĭorrelation Coefficient is calculated using the excel formulaīased on the information, you will choose stock ABC and XYZ to invest since they have the highest coefficient of determination. Your friend, who is an active investor, has shortlisted 3 stocks for you, based on their fundamental and technical information and you want to choose 2 stocks among those three. So you want to invest in a stock which is safe and can mimic the performance of the index. You are not sure which stocks to invest in and also your risk appetite is low. Let say you are a very risk-averse investor and you looking to invest money in the stock market. Similarly, calculate it for data set Y also.Ĭalculate the square of the difference for both the data sets X and Y.Ĭorrelation Coefficient is calculated using the formula given belowĬorrelation Coefficient = Σ / √ Ĭoefficient of Determination is calculated using the formula given belowĬoefficient of Determination = (Correlation Coefficient) 2Ĭoefficient of Determination = 13.69% Coefficient of Determination Formula – Example #2 Similarly, calculate for all the data set of X. ![]() Now, we need to calculate the difference between the data points and the mean value.
0 Comments
Leave a Reply. |