What Is R-Squared?

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

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.

Loading paragraph...

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

Loading image...

Loading paragraph...

Regression

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

Loading paragraph...

How to Invest in Stocks: 5 Steps to Get Started

Are you ready to jump into the stock market? We've got you. Build long-term wealth using The Motley Fool's market-beating method.

What Is the 4% Rule?

The 4% retirement rule is simple but no guarantee of comfort in your old age.

Up-and-Coming Stocks: 11 Stocks for 2026

An in-depth look at up-and-coming company stocks in the U.S. stock market this year. Here's what you need to know.

Loading hub_pages...

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.

Loading paragraph...

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.

TMFHobo

@TMFBowman

The Motley Fool has a disclosure policy.