# What Is a Coefficient of Determination?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

The Coefficient of Determination, also commonly referred to as R-squared, is a statistic that provides a gauge of how well a model explains and predicts future outcomes. It is the square of the correlation coefficient and generally ranges between 0 and 1. A score closer to 1 suggests the model fits the data quite well, while a value closer to 0 implies the model provides a poor fit to the data. The Coefficient of Determination informs you of the proportion of the variance in the dependent variable that is predictable from the independent variable. Essentially, it gives an idea of how many points fall on the regression line.

## Related Questions

1. What does a Coefficient of Determination close to 1 mean?

A Coefficient of Determination close to 1 implies that the statistical model offers a strong fit to the observed data. In other words, the independent variable(s) explains much of the variation in the dependent variable.

2. What does a Coefficient of Determination close to 0 suggest?

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A Coefficient of Determination close to 0 suggests that the model doesn’t fit the data well. This means the independent variable(s) doesn’t explain much of the variation in the dependent variable.

3. Is a high Coefficient of Determination always good?

Not necessarily. A high Coefficient of Determination indicates that the model fits the data well, but it doesn’t guarantee that the model is the correct one. It’s possible to have an overfitted model with a high R-squared that doesn’t accurately predict unseen data. The context and purpose of the model should always be considered.

4. How is the Coefficient of Determination used in regression analysis?

In regression analysis, the Coefficient of Determination is used to quantify how well the regression line predicts the observed data. It provides a measure of how much of the variance in the dependent variable the model can explain, which is useful in evaluating the model’s performance.

5. Can the Coefficient of Determination be negative?

While it’s rare, the Coefficient of Determination can be negative if the chosen model fits the data worse than a horizontal line (i.e., a model that doesn’t use any independent variables). But in most contexts, a negative R-squared doesn’t make much sense and often signals that the model is inappropriate.