ADJUSTED R_SQUARE

R_Square (the Coefficient of Determination) is the percent of the Total Sum of

Squares that is explained; i.e., Regression Sum of Squares (explained deviation)
divided by Total Sum of Squares (total deviation). This calculation yields a
percentage. It also has a weakness. The denominator is fixed (unchanging) and the
numerator can ONLY increase. Therefore, each additional variable used in the
equation will, at least, not decrease the numerator and will probably increase the
numerator at least slightly, resulting in a higher R_Square, even when the new
variable causes the equation to become less efficient(worse).
In theory, using an infinite number of independent variables to explain the change in
a dependent variable would result in an R_ Square of ONE. In other words, the
R_Square value can be manipulated and should be suspect.
The Adjusted R_Square value is an attempt to correct this short_coming by adjusting
both the numerator and the denominator by their respective degrees of freedom.
_
R2 = 1- (1 - R2 )((n - 1)/(n - k - 1))
where: R2 = Coefficient of Determination
_
R2 = Adjusted Coefficient of Determination
n = number of observations
k = number of Independent Variables
for example: when R2 =.9; n=100; and k=5; then
_
R2 = 1 - (1 - .9)((100 - 1)/(100 - 5 - 1))
= 1 - (1 - .9)(99/94)
= 1 - (.1)(1.05319)
= 1 - .105319
= .89468
Unlike the R_Square, the Adjusted R_Square can decline in value if the contribution to
the explained deviation by the additional variable is less than the impact on the
degrees of freedom. This means that the Adjusted R_Square will react to alternative
equations for the same dependent variable in a manner similar to the Standard Error
of the Estimate; i.e., the equation with the smallest Standard Error of the Estimate
will most likely also have the highest Adjusted R_Square.
A final caution, however, is that while the R_Square is a percent, the Adjusted
R_Square is NOT and should be referred to as an index value.