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R-Squared

How well the benchmark explains portfolio returns.

R-squared (coefficient of determination) measures the percentage of portfolio return variance explained by the benchmark. R² of 1.0 means the portfolio moves perfectly with the benchmark; lower values indicate the portfolio has significant idiosyncratic risk. High R² makes beta and alpha estimates more reliable.

Formula
R2=ρp,m2=(Cov(Rp,Rm)σpσm)2R^2 = \rho^2_{p,m} = \left(\frac{\text{Cov}(R_p, R_m)}{\sigma_p \sigma_m}\right)^2
Where
ρp,m\rho_{p,m}=Correlation of portfolio and market
RpR_p=Portfolio return
RmR_m=Market return
σp\sigma_p=Portfolio volatility
σm\sigma_m=Market volatility
Related Terms

Portfolio Beta

How much the portfolio moves relative to the market.

Covariance Matrix

Captures how asset returns move together — the foundation of diversification.

DV01

Dollar change in value for a 1 basis point (0.01%) yield move.

CS01

Dollar change in value for a 1 basis point move in credit spread.

Macaulay Duration

The weighted average time (in years) to receive the bond's cash flows.

Modified Duration

Measures the percentage price change for a 1% yield change.