I’m estimating a bivariate OLS model and I want to deepen my understanding of $R^2$. Therefore I’m trying to visualize it by plotting my predicted values vs. actual values of the DV.
I expected the correlation (i.e., $R^2$) of a linear trend line through these points would be equal to the $R^2$ for the overall bivariate model.
However that’s not happening. Does $R^2$ measure the ability of the model (predicted values in this case) to explain the variation in the observed values?
I’ve created a model to help with this. The model uses the price of oil to predict raw material cost. It’s very a very biased model, but I don’t think that should matter for the purposes of understanding R^2 here. Am I wrong?
This is where my confusion is:
Output from Regression: