#r-squared

R-Squared Indicator Says Market Could Get Scary

Wells Capital’s James Paulsen has been bullish — correctly — throughout much of the bull market that began in March 2009. But now, Paulsen says that a key sentiment indicator that has predicted many former declines is flashing a warning signal.

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Once you run a regression, one of the first bits of output is an R-squared. No matter how complicated your regression model, you will almost always interpret the R2. 

That's because the R2 tells you a really important piece of information: How much of the variance (the individual differences) in your outcome variable are being explained by your predictors. 

Even if you have a statistically significant predictor (a slope that's significantly different from zero), you might still only be explaining a very small proportion of the variance in your outcome.