What Is R-Squared?

By Jeremy Bowman – Updated Feb 25, 2025 at 10:39 PM

Key Points

R-squared values range from 0 to 1, indicating the fit and explanatory power of a regression model.
Values below 0.3 suggest weak explanatory power; above 0.7 indicate strong relationships.
In finance, R-squared helps analyze effects of various metrics on stock prices or interest rates.

Regression models are a key tool used in statistics and investing, helping forecasters model the relationship between two variables to understand how closely they are related.

One of the values that is helpful to understand when you're using a regression model is r-squared.

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A young woman looks at a chalkboard full of numbers. — Image source: Getty Images.

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Regression

A statistical technique that can be used to estimate an outcome based on various inputs.

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Stocks had rebounded more than 20% from their recent lows by late 2023, but they had yet to set new highs. While it's impossible to predict when that will happen, a regression analysis and the r-squared value could show if the increase in stocks and other variables are random. There are likely to be a number of factors that have at least a small correlation with the beginning of a new bull market.

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About the Author

Jeremy Bowman has been a contributing Motley Fool stock market analyst, covering technology, consumer goods, and macroeconomic trends since 2011. Before The Motley Fool, Jeremy was a newspaper reporter, restaurant manager, and English teacher abroad. He holds a bachelor’s degree in English from Colorado College and a master’s degree in business administration from American University. One of his Motley Fool headlines was briefly featured on Late Night with Stephen Colbert.

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