Coefficient of Determination: Overview

What Is the Coefficient of Determination?

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.

Understanding the Coefficient of Determination

The coefficient of determination is a measurement used to explain how much variability of one factor can be caused by its relationship to another related factor. This correlation, known as the "goodness of fit," is represented as a value between 0.0 and 1.0. A value of 1.0 indicates a perfect fit, and is thus a highly reliable model for future forecasts, while a value of 0.0 would indicate that the calculation fails to accurately model the data at all. But a value of 0.20, for example, suggests that 20% of the dependent variable is predicted by the independent variable, while a value of 0.50 suggests that 50% of the dependent variable is predicted by the independent variable, and so forth.

Graphing the Coefficient of Determination

On a graph, the goodness of fit measures the distance between a fitted line and all of the data points that are scattered throughout the diagram. The tight set of data will have a regression line that's close to the points and have a high level of fit, meaning that the distance between the line and the data is small. Although a good fit has an R2 close to 1.0, this number alone cannot determine whether the data points or predictions are biased. It also doesn't tell analysts whether the coefficient of determination value is intrinsically good or bad. It is at the discretion of the user to evaluate the meaning of this correlation, and how it may be applied in the context of future trend analyses.