Calculating R-squared of portfolio - Aussie Stock Forums

# Thread: Calculating R-squared of portfolio

1. ## Calculating R-squared of portfolio

Hi,

I am new to investing and are currently studying some stuff regarding portfolio selection.

I am wondering how to calculate the R-squared of a weighted portfolio of stocks (without using Excel).

For a single stock's returns I can calculate correlation coefficient relative to market and square it to get coefficient of determination. I can also calculate beta for the individual stocks and use that coefficient of determination to evaluate the beta.

My issue is trying to calculate for a weighted portfolio.

I can use weighted sum of stock betas to calculate portfolio beta.

But I don't know how to calculate the coefficient of determination for that weighted portfolio in order to evaluate that portfolio beta.

Is there some easy way to calculate it from the individual stock statistics? For example would it be as simple as a weighted sum of stock coefficients?

Or would I need to calculate the periodic weighted returns over time for the portfolio and use that to calculate coefficient of determination the same way as a single stock?

Thanks.

2. ## Re: Calculating R-squared of portfolio

lol I guess you graduated with a finance major! I did too, UNFORTUNATELY.

Let me tell you something my friend, the first thing you need to do is unlearn those things. Beta is not a risk, volatility is your friend.

Originally Posted by DefiniteIntegral
Hi,

I am new to investing and are currently studying some stuff regarding portfolio selection.

I am wondering how to calculate the R-squared of a weighted portfolio of stocks (without using Excel).

For a single stock's returns I can calculate correlation coefficient relative to market and square it to get coefficient of determination. I can also calculate beta for the individual stocks and use that coefficient of determination to evaluate the beta.

My issue is trying to calculate for a weighted portfolio.

I can use weighted sum of stock betas to calculate portfolio beta.

But I don't know how to calculate the coefficient of determination for that weighted portfolio in order to evaluate that portfolio beta.

Is there some easy way to calculate it from the individual stock statistics? For example would it be as simple as a weighted sum of stock coefficients?

Or would I need to calculate the periodic weighted returns over time for the portfolio and use that to calculate coefficient of determination the same way as a single stock?

Thanks.

3. ## Re: Calculating R-squared of portfolio

Instead of calculating the beta of individual components of the portfolio, figure out the continuous price of the portfolio (how much would it cost to buy that portfolio on any given day) and treat it as a single security which you already know how to calculate the beta,R2,whatever of.