(Assignment)

Of

(Business)
(International Analysis)
Program: BBA After 14 Years
Semester
3rd
Submitted to:Sir Dr Tahir Yousaf
Submitted by: Sheraz Aslam
Roll No: MBBF19M (018)
 Topic
Coefficient of Determination

Definition Coefficient of Determination

COEFFICIENT OF DETERMINATION
One very convenient and useful way of interpreting the value of coefficient of correlation
between two variables is to use the square of coefficient of correlation, which is called
coefficient of determination. The coefficient of determination thus equals r 2 . If the value of r
= 0.9, r2 will be 0.81 and this would mean that 81 percent of the variation in the dependent
variables has been explained by the independent variable. The maximum value of r 2 is unity
because it is possible to explain all of the variation in Y, but it is not possible to explain more
than all of it.

The coefficient of determination ( r2 ) is defined as the ratio of the explained variance to the
total variance.

Coefficient of determination = Explained variance

Total variance

R2=¿ Σ ¿ ¿
Alternative formula for calculating coefficient of determination
R2=a Σ y +b Σ xy−¿ ¿
● The Coefficient of determination can take any value between 0 and 1.
● The closer value is to1, the better the explanatory power of the independent variable.
0≤ R 2 ≤ 1
● A value R2=1 signifies that100% of the variability in the dependent variable is associated
with the regression equation.
● When R2=0 it means that none of the variability in the dependent variable is explained by
x variable.
● If the observed value fall on the regression line then value of R2 will be equal to 1.
● If the observed value is not fall on the regression line Σ ¿
Them the R2will be equal to 0

Example
Using y as dependent variable
Σ y=220 , Σ y 2=5500 , Σ xy =3560 , b=1.05 , a=8.74 , n=10

R2=a Σ y +b Σ xy−¿ ¿
R2=(7.76)(220)+(1.05)(3560)−¿ ¿

( 1707)+(3738)−( 48400)/10
R 2=
5500❑−(48400)/10

1707+3738−4840
R 2=
5500−4840
605
R 2=
660
R2=¿ 0.916
Value of R2=0.916 indicate that 91.6%of the variability in y