R squared - are we going to need to be able to calculate this?

R

Rob_84

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Understand the returns based analysis formula and the meaning of R-squared but cannot remember how to calculate it (think we did this in level 2) anyone know whether the calculation of this might be required tomorrow?
 
Thanks - I haven’t seen it anywhere in the material but just wanted to check… Don’t think I have the head space for any more formulas… Less calculations for level 3 they said
 
Just remember that it’s the square of r.
Don’t think we’ll have the SSR/SST.
 
BTW, when deciding whether the fund has been actively managed or not, we need to look at R2.
What’s the level of return unexplained by style that makes active management? I recall an exercise where a 90% R2 was considered active management (10% not explained by style), but… where is the limit?
Cheers
 
Seems high for active management.
Question would most likley be along the lines of: Explain two reasons why the manager is a Value/Growth style.
Which you would use the R^2.
 
My point is that 1-r2 in a returns based analysis shows whether there was active management or passive management.
What’s the number to consider active management? It has nothing to do with either growth or value
 
sharky7 wrote:
My point is that 1-r2 in a returns based analysis shows whether there was active management or passive management.
What’s the number to consider active management? It has nothing to do with either growth or value
Click to expand...
A low R2 might also signal a lousy benchmark. A style drift isn’t always alpha.
Would be better to get a good fit with the benchmark, then calculate the active returns seperatley to determine active managment.
Security selection is only one factor that would explain a low(ish) R2. Which can be used in an active managment question to provide reasons if the number does not look high, I’d say <80.
 
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