Adjusted R-Squared Formula, Equation, Definition

Adjusted R Squared Definition:

Adjusted R-squared is nothing but the change of R-square that adjusts the number of terms in a model. Adjusted R square calculates the proportion of the variation in the dependent variable accounted by the explanatory variables.

Formula:

Example :

A fund has a sample R-squared value close to 0.5 and it is most likely offering higher risk-adjusted returns with the sample size of 50 for 5 predictors.

Given,

Sample size = 50 Number of predictors = 5 Sample R -square = 0.5

To Find,

Adjusted R square value

Solution:

Substitute the values in the formula,