Document Type
Blog Post
Publication Date
1-14-2013
Contents
R-squared is the correlation (i.e., r) of a fund to its benchmark index multiplied by itself (i.e., squared). R-squared measures how closely a fund tracks its respective index. A recent article (see here, Wall Street Journal) suggests that investors should search for actively managed funds with low R-squareds, as this suggests the manager is truly trying to add value by concentrating on specific sectors of the benchmark universe. However, doing so increases systematic risk. So, there is a tradeoff.
Recommended Citation
Dolvin, Steven D., "R-Squared and Fund Selection" (2013). All Chapters. 54.
https://digitalcommons.butler.edu/jmdallchapters/54