- CFA Exams
- CFA Level I Exam
- Study Session 2. Quantitative Methods (1)
- Reading 4. Introduction to Linear Regression
- Subject 3. The standard error of estimate and the coefficient of determination

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**CFA Practice Question**

What can we say if the coefficient of determination is 0.94?

II. 94% of total variation in one variable is explained by variation in another variable.

III. Strength of relationship is 0.94

I. Direction of relationship is positive.

II. 94% of total variation in one variable is explained by variation in another variable.

III. Strength of relationship is 0.94

A. II only

B. I and II

C. II and III

**Explanation:**94% of total variation in one variable is explained by variation in another variable We cannot tell anything about the direction of the relationship from the coefficient of determination or r-squared.

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**User Contributed Comments**
5

User |
Comment |
---|---|

Andrewua |
What measures strength? anyone knows...? |

nl8585 |
the r squared. |

uviolet |
correlation coefficient measures strength |

rhardin |
So strength would be .94^1/2, or .97, which is the correlation coefficient. |

shrabastee |
The square root of a number may be positive or negative. Hence, the square root of 0.94 my be either 0.97 or -0.97. Hence, we cannot tell the direction of the relationship. The strength of the relationship is 0.97 |