R-squared is a tool that should be used when evaluating a strategy, fund or longer term investment. Depending on your goals, this metric tells you a lot about the manager and the value they bring to the table. It allows you to evaluate a system to determine how similar it is to what you are already doing.
What is the scientific definition?
R-squared (R2) is a statistical measure that represents the proportion of the variance for a dependent variable that’s explained by an independent variable or variables in a regression model.
And in layman's terms?
R-squared is the measure of your trading performance that is dictated by how the market you are trading actually performs. R-squared is measured from 0% to 100% with anything above 70% being correlated and anything below 40% being noncorrelated. So, if you have an R-squared of 50%, then half of your performance is explained by the market itself and the other half is explained by your inputs.
What are you bringing to the table as a trader?
As a trader, the more systematic and emotionless your strategy becomes, the lower your R-squared should be. If you are beating the market, this low figure shows you are providing value above and beyond what the market itself is providing.
So, what is the fractalerts' R-squared?
To give an overview of what fractalerts brings to the table (and to compare this to your own trading) we have summarized the historical r squared for of all of our 9 products below. This shows we have been consistently beating the market for 16+ years, and most of, if not all of our performance can be attributed to the math and physics that is at the heart of our strategy.
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