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Interpret Excel's Linear Trend Line

Posted on 2010-09-17
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Last Modified: 2012-05-10
So I'm trying out Excel's Trendline feature for charts and I'm wondering how to interpret it.  I plotted out Sales Conversion Rates for 2 years and added a Linear Trendline in Excel.  I read that the closer the r squared value is to 1 the more accurate the trend is.  The r squared values I'm getting are all close to 0.  Does that mean the trend of the line is not accurate?  How do I interpret r squared value?  Thanks.
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Question by:error_prone
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9 Comments
 
LVL 8

Expert Comment

by:fabriciofonseca
ID: 33704157
The R-square value is an indicator of how well the model fits the data (e.g., an R-square close to 1.0 indicates that we have accounted for almost all of the variability with the variables specified in the model).

In other words your 0 (zero) means that your trend is not accurate.
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Assisted Solution

by:Patrick Matthews
Patrick Matthews earned 1000 total points
ID: 33704177
error_prone,More to the point, an r-squared of close to zero means that the regression model has basically no predictive value, and that your independent variable and dependent variables are wholly unrelated.Patrick
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Author Comment

by:error_prone
ID: 33704178
Can you give me some real world hypothetical examples if let's say you plotted sales of fruits across a time series and the R squared value was close to zero?
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LVL 24

Expert Comment

by:Tracy
ID: 33704200
>>How do I interpret r squared value?

FWIW, Microsoft explains the R-squared value:

R-squared value: A number from 0 to 1  that reveals how closely the estimated values for the trendline  correspond to your actual data. A trendline is most reliable when its R-squared value is at or near 1. Also known as the coefficient of determination.
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Author Comment

by:error_prone
ID: 33704204
So basically the line drawn across a Sales Over Time chart has no relationship if the R squared value is 0? Ok.
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LVL 8

Accepted Solution

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fabriciofonseca earned 1000 total points
ID: 33704236
It is something like:

                             Sales
  Year01 Q01         10
  Year01 Q02         20
  Year01 Q03         30
  Year01 Q04         40
  Year02 Q01         90
  Year02 Q02         45
  Year02 Q03          5
  Year02 Q04          80
  Year03 Q01          20
  Year03 Q02          120
  Year03 Q03          10

There is not a relationship between time and sales
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Author Comment

by:error_prone
ID: 33704255
Ok, I accidentally closed out the question when I meant to award points!
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Author Comment

by:error_prone
ID: 33704258
I accidentally closed out the question when I meant to award points!
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Author Comment

by:error_prone
ID: 33717503
It's not letting me split points.  This is the second time trying...
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