R-squared
InvestingDefinition
How much of a portfolio's movement is explained by movements in its benchmark. Range: 0 to 1. R² of 0.95 means 95% of the portfolio's variability is the benchmark; the rest is alpha and idiosyncratic noise.
High R² (>0.95) = closet indexer charging active fees. Lower R² doesn't guarantee skill but at least means the manager is making real bets.
High R² (>0.95) = closet indexer charging active fees. Lower R² doesn't guarantee skill but at least means the manager is making real bets.