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R-square can be used to better understand the relationship between a portfolio and some benchmark (potentially the market as a broad measure or some index).

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R-square can be used to better understand the relationship between a portfolio and some benchmark (potentially the market as a broad measure or some index). If you have a portfolio with an R-square of .85 relative to some benchmark, which of the following would be the correct interpretation of this measure? Low correlation; 15% of the variance in your portfolio can be explained by observed movements in your benchmark High correlation: 85% of the variance in your portfolio can be explained by observed movements in your benchmark This is a high performing portfolio This is a low performing portfolio

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