Coefficient of

Determination and
Interpretation Of
Determination
Coefficient

Submitted to: - Submitted by:-

Dr.Amandheer Kapoor Jasdeep Singh Bains
MBA Retail (1st)
Roll No-7
Introduction
In Statistics,the coefficient of determination, denoted by R2 or r2 and
pronounced "R squared", is a number that indicates the proportion of
the variance in the dependent variable that is predictable from the
independent variable.
The coefficient of determination is used to explain how much
variability of one factor can be caused by its relationship to another
factor. It is relied on heavily in trend analysis and is represented as a
value between zero and one. The closer the value is to one, the better
the fit, or relationship, between the two factors. The coefficient of
determination is the square of the correlation coefficient also known
as "R," which allows it to display the degree of linear correlation
between two variables.

Analyzing the Coefficient of

Determination
The coefficient of determination is the square of the correlation
between the predicted scores in a data set versus the actual set of
scores. It can also be expressed as the square of the correlation
between X and Y scores, with the X being the independent variable
and the Y being the dependent variable.

Regardless of representation, an R-Squared equal to zero means that

the dependent variable cannot be predicted using the independent
variable. Conversely, if it equals one, it means that the dependent of
variable is always predicted by the independent variable. A coefficient
of determination that falls within this range measures the extent that
the dependent variable is predicted by the independent variable. An R-
squared of 0.20, for example, means that 20% of the dependent
variable is predicted by the independent variable

2
Usefulness of R
The usefulness of R2 is its ability to find the likelihood of future
events falling within the predicted outcomes. The idea is that if
more samples are added, the coefficient would show the probability of
a new point falling on the line.
For example, a study on birthdays may show a large number of
birthdays happen within a time frame of one or two months. This does
not mean that the passage of time or the change of seasons causes
pregnancy.

R-squared is a handy, seemingly intuitive measure of how well your

linear model fits a set of observations. However, R-squared doesnt
tell us the entire story. You should evaluate R-squared values in
conjunction with residual plots, other model statistics, and subject
area knowledge .

While R-squared provides an estimate of the strength of the

relationship between your model and the response variable, it does not
provide a formal hypothesis test for this relationship.

http://www.statisticshowto.com/what-is-a-coefficient-of-
determination/
Graphical Representation of R-
squared
Plotting fitted values by observed values graphically illustrates
different R-squared values for regression models.

The regression model on the left accounts for 38.0% of the variance
while the one on the right accounts for 87.4%. The more variance that
is accounted for by the regression model the closer the data points
will fall to the fitted regression line. Theoretically, if a model could
explain 100% of the variance, the fitted values would always equal
the observed values and, therefore, all the data points would fall on
the fitted regression line.

Key Limitations of R-squared

R-squared cannot determine whether the coefficient estimates and
predictions are biased, which is why we must assess the residual plots.

R-squared does not indicate whether a regression model is adequate.

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 the output can be a biased estimate of the

population
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
behaviour, such as psychology, typically has R-squared values lower
than 50%. Humans are simply harder to predict than, say, physical
processes.

Furthermore, if your R-squared value is low but you have statistically

significant predictors, you can still draw important conclusions about
how changes in the predictor values are associated with changes in the
response value. Regardless of the R-squared, the significant
coefficients still represent the mean change in the response for one
unit of change in the predictor while holding other predictors in the
model constant. Obviously, this type of information can be extremely
valuable.

Are High R-squared Values

Inherently Good?
No! A high R-squared does not necessarily indicate that the model has
a good fit. That might be a surprise, but look at the fitted line plot and
residual plot below. The fitted line plot displays the relationship
between semiconductor electron mobility and the natural log of the
density for real experimental data.

http://blog.minitab.com/blog/adventures-in-statistics/regression-
analysis-how-do-i-interpret-r-squared-and-assess-the-goodness-of-fit
Interpretation
R2 is a statistic that will give some information about the goodness of
fit of a model. In regression, the R2coefficient of determination is a
statistical measure of how well the regression line approximates the
real data points. An R2 of 1 indicates that the regression line perfectly
fits the data.

Values of R2 outside the range 0 to 1 can occur where it is used to

measure the agreement between observed and modeled values and
where the "modeled" values are not obtained by linear regression and
depending on which formulation of R2 is used. If the first formula
above is used, values can be less than zero. If the second expression is
used, values can be greater than one. Neither formula is defined for
the case where .

In all instances where R2 is used, the predictors are calculated by

ordinary least-squares regression: that is, by minimizing SSres. In this
case R2 increases as we increase the number of variables in the model
(R2 is monotone increasing with the number of variables included
i.e., it will never decrease). This illustrates a drawback to one possible
use of R2, where one might keep adding variables (Kitchen sink
regression) to increase the R2 value. For example, if one is trying to
predict the sales of a model of car from the car's gas mileage, price,
and engine power, one can include such irrelevant factors as the first
letter of the model's name or the height of the lead engineer designing
the car because the R2 will never decrease as variables are added and
will probably experience an increase due to chance alone.

This leads to the alternative approach of looking at the adjusted R2.

The explanation of this statistic is almost the same as R2 but it
penalizes the statistic as extra variables are included in the model. For
cases other than fitting by ordinary least squares, the R2 statistic can
be calculated as above and may still be a useful measure. If fitting is
by weighted least squares or generalized least squares, alternative
versions of R2 can be calculated appropriate to those statistical
frameworks, while the "raw" R2 may still be useful if it is more easily
interpreted. Values for R2 can be calculated for any type of predictive
model, which need not have a statistical basis.

While it is often desirable to have high enough R-squared, there are

multiple models with low R-squared that might worry an
inexperienced researcher. Low R-squared are rather expected in
models with presence of other influential factors that can't be
measured. For example, R-squared of 10% and less is appropriate for
models that study impact of practicing religion on health and life
satisfaction.

http://mathbits.com/MathBits/TISection/Statistics2/correlation.htm