What would you consider a decent R square value of a good trading strategy.
I know R squared is not a good metric for judging trading strategies but still at an initial stage how do you decide to keep a predictor variable if r squared of the model is good but trading strategy results are poor.
More specifically , I have 2 trading models with 2 different predictive variables one have a R square of 5% and average backtesting return. The second have a R square of 1% and good backtesting returns.(I have assumed the simplest regression model for both with no parameter fitting other than the coefficients themselves.)
So, my question is
- which model is better?
- Is R squared of 5% decent value or should it be atleast 20-30%.
Please provide any other inputs regarding the metrics if you can.