R-Squared (R²) Calculator: Measure Portfolio Correlation with the Market

Investors want to know how much of their portfolio’s performance is explained by market movements. The R-Squared (R²) metric tells you this clearly.

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Our R-Squared Calculator allows you to quickly evaluate the degree to which your portfolio’s returns follow the overall market.

What is R-Squared (R²)?

R-Squared (R²) measures the percentage of a portfolio’s movement explained by the market.

R² = 100%: Portfolio perfectly follows market movements.
R² = 0%: Portfolio moves independently of the market.

R-Squared Formula: R2=r2×100R^2 = r^2 \times 100R2=r2×100

r: Correlation coefficient between portfolio and market returns.
Often used with Beta to understand market sensitivity.

A higher R² indicates that the portfolio’s performance is more predictable based on market behavior.

How to Use the R-Squared Calculator

Enter Beta (β) (portfolio sensitivity to market).
Enter Correlation with Market (r).
Click Calculate.

The calculator displays R-Squared (R²) and a color-coded indicator:

R² (%)	Interpretation	Indicator
≥ 75	High correlation: Portfolio closely follows market	✅ Green
50 – 74	Moderate correlation: Portfolio partly follows market	⚠️ Orange
< 50	Low correlation: Portfolio largely independent of market	❌ Red

Example:

Beta = 1.1
Correlation (r) = 0.85

R2=0.852×100=72.25%R^2 = 0.85^2 \times 100 = 72.25\%R2=0.852×100=72.25%

⚠️ Moderate: The portfolio moderately follows market movements.

Why R-Squared Matters

For Investors: Understand how much market movements explain portfolio returns.
For Portfolio Managers: Assess how diversified or market-sensitive a portfolio is.
For Analysts: Helps interpret Beta and Alpha correctly in risk-return analysis.

High R² with Beta >1 means the portfolio is volatile but predictable with the market. Low R² indicates returns are influenced more by stock selection than market trends.

Key Takeaways

R² measures correlation of portfolio with market.
High R² (≥75%): Portfolio performance closely follows market.
Moderate R² (50–74%): Partial market influence.
Low R² (<50%): Portfolio largely independent.
Use R² alongside Alpha, Beta, Sharpe, Treynor, and Sortino ratios for comprehensive analysis.

Try the R-Squared Calculator Now

Use our R-Squared Calculator to evaluate how closely your portfolio performance is tied to market movements and make smarter investment decisions.