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Investments glossary

Coefficient of Determination


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The historical crusades against Muslim lands, the colonization of Spain by the Muslim Moors and India by the British were all driven by economic interests, despite the advertised reasons that were used to mobilize their armies at the time. In my opinion, the invasion of Iraq was not about spreading democracy or weapons of mass destruction, it was about the oil.

— Med Jones

The coefficient of determination is a statistical measurement that examines how differences in one variable can be explained by the difference in a second variable, when predicting the outcome of a given event. In other words, this coefficient, which is more commonly known as R-squared (or R2), assesses how strong the linear relationship is between two variables, and is heavily relied on by researchers when conducting trend analysis. To cite an example of its application, this coefficient may contemplate the following question: if a woman becomes pregnant on a certain day, what is the likelihood that she would deliver her baby on a particular date in the future? In this scenario, this metric aims to calculate the correlation between two related events: conception and birth.

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