Building a handrail for your deck may seem like a simple task. In many cases it is -- until the time arrives to figure out how to get the balusters or spindles evenly spaced along the handrail. Evenly spaced spindles improve the symmetry of the rails and lend a professional look to the project. But finding the right measuring formula may give the average home handyman pause.
R-squared is a statistical measurement that determines the proportion of a security's return, or the return on a specific portfolio of securities, that can be explained by variations in the stock market, as measured by a benchmark index.
You can have a low R-squared value for a good model, or a high R-squared value for a model that does not fit the data! The R-squared in your output is a biased estimate of the population R-squared. Are Low R-squared Values Inherently Bad? No! There are two major reasons why it can be just fine to have low R-squared values. In some fields, it is entirely expected that your R-squared values will be low. For example, any field that attempts to predict human behavior, such as psychology, typically has R-squared values lower than 50%.