# Risk glossary

## r2

The co-efficient of determination, which varies between 0 and 1. It is loosely interpreted as ‘the proportion of variance in y, which can be explained by x’.

It is the percentage of the total sum of squares of the dependent variable that the independent variable explains, after one optimises the intercept and the slope co-efficient of the independent variable. In other words, r2 is the percentage by which volatility of a linear combination of the dependent and independent variables and a constant declines after choosing the optimal intercept and slope co-efficient.