Groundlearn / Glossary / Coefficient of determination
Coefficient of determination (R2)
Also called R-squared, R2. A CFA and FRM term, defined in plain English with the distinction examiners test.
What it means
The fraction of the dependent variable’s variation explained by the regression.
The exam angle
Never falls when a variable is added, however useless that variable is. Adjusted R² penalises extra regressors and is the honest comparison between models of different size.
Where it appears in the syllabus
- Quantitative MethodsCFA Level I · exam weight 11–14% · Returns and benchmarks, time value, distributions, portfolio maths, regression.
- Quantitative MethodsCFA Level II · exam weight 5–10% · Multiple regression, misspecification, time series, machine learning.
- Quantitative AnalysisFRM Part I · exam weight 20% · Probability, hypothesis testing, regression, time series, volatility, simulation.
Related terms
- Linear regressionFitting a straight line through data by minimising the sum of squared residuals, to explain a dependent variable by…
- Arithmetic meanThe sum of the observations divided by their number.
- BootstrapResampling the observed data with replacement to estimate the sampling distribution of a statistic, without assuming a…
- Central limit theoremFor a large enough sample, the distribution of the sample mean approaches normal regardless of the shape of the…
- Confidence intervalA range that will contain the true parameter in a stated proportion of repeated samples.
- Continuous compoundingCompounding over infinitely small intervals.
Educational content only. This is not financial, investment, legal or regulatory advice. Check the official curriculum for your own exam before relying on any definition here.
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