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goodness of fit metric

Discussion in 'Finance' started by amiando, Oct 8, 2018.

  1. amiando

    amiando Guest

    I am trying to approximate the returns of asset A by means of a linear combination of other assets A'=aB0+bB1+c*B2....

    I have this quite figured out but I'm not sure what a good metric for goodness of fit would be, so far I am only considering relative error (e=(rA-rA')/rA), and I'm concerned with distortions when rA is close to 0.

    What would a better metric could be? Ideally it would penalize sign errors more than absolue value errors (ie, it is worse that rA' is positive when rA is negative).

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