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What is the coefficient of determination (R²)?

02/22/2024 | by Patrick Fischer, M.Sc., Founder & Data Scientist: FDS

The coefficient of determination, also known as R² (R-squared), is a measure of the explanatory power of a regression model. It indicates how well the independent variable(s) explain the variation in the dependent variable. Here are some key points about the coefficient of determination:

1. Definition

Coefficient of Determination (R²): The coefficient of determination represents the proportion of the variance in the dependent variable explained by the independent variable(s) in the model. It ranges from 0 to 1, where 1 means the model explains all variations, and 0 means it explains none.

2. Interpretation

Interpretation: An R² of 0.75 would mean that 75% of the variation in the dependent variable can be explained by the independent variable(s) in the model.

3. Significance

Significance: A higher R² suggests that the model is better at explaining the variation in the dependent variable. However, it's important to consider other aspects of the model, such as residual analysis.

4. Limitations

Limitations: R² alone does not provide information about causation or the validity of the model. A high R² does not necessarily imply causality.

The coefficient of determination is a useful tool in regression analysis, but it's crucial to consider it in the context of other evaluation criteria for a comprehensive assessment of the model.

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