Regression

Quantitative Aptitude & Business Statistics

Regression
Regression

is the measure of
average relationship between two
or more variables in terms of
original units of the data.

Quantitative Aptitude & Business Statistics:

Regression

 Regression

analysis is a statistical
tool to study the nature and extent
of functional relationship between
two or more variables and to
estimate the unknown values of
independent variable.

Quantitative Aptitude & Business Statistics:

Regression

 Dependent

variable :The Variable

Which is predicted on the basis of
another variable is called
Dependent variable or explained
variable .
Independent variable :The Variable
Which is used to predict another
variable is called independent
variable or explanatory variable.
Quantitative Aptitude & Business Statistics:
Regression

Uses of

Regression Analysis

1.Regression line facilitates to

predict the values of a dependent
variable from the given value of
independent variable.
2.Through Standard Error facilitates
to obtain a measure of the error
involved in using the regression
line as basis for estimation.
Quantitative Aptitude & Business Statistics:
Regression

3.Regression coefficients (bxy and

byx) facilitates to calculate
coefficient of determination (r2)
and coefficient of correlation.
4.Regression Analysis is highly
useful tool in economics and
business.
Quantitative Aptitude & Business Statistics:
Regression

Distinction between Correlation and

Regression
Correlation

Regression

1. Correlation
measures degree and
direction of
relationship between
variables.

1. Regression
measures nature and
extent of average
relationship between
two or more variables.

2.It is a relative measure

showing association
between variables.

2.It is an absolute
measure relationship.

Quantitative Aptitude & Business Statistics:

Regression

Correlation
Regression
3. Correlation
3. Regression Coefficient
Coefficient is
is independent of origin
independent of both but not scale.
origin and scale.
4. Correlation

Coefficient is
independent of
units of
measurement.

4.Regression Coefficient
is not independent of
units of measurement.
Quantitative Aptitude & Business Statistics:
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Correlation
5.Correlation
Coefficient is
lies between -1 and
+1.

Regression
5. Regression equation
may be linear or nonlinear .

6. It is not

6.It is a forecasting
device.

forecasting device.

Quantitative Aptitude & Business Statistics:

Regression

Regression lines

Regression line X on Y

X = a + bY

Where X= Dependent Variable

Y =Independent variable
a=intercept and b= slope

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Another way of regression line X on Y

X X = bxy Y Y
x
X X =r
Y Y
y
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Regression coefficients

There are two regression coefficients byx and

bxy
The regression coefficient Y on X is
by x = r .

The

y
x

regression coefficient X on Y is
bxy

x
= r.
y

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Regression coefficients
The

regression coefficient X on Y is
bxy

x
= r.
y

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Regression line Y on X

Y = a + bX

Where Y= Dependent Variable

X =Independent variable
a=intercept and b= slope

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Another way of regression line Y on X

Y Y = byx X X

y
(
Y Y = r
X X)
x
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Properties of Linear Regression

Two

Regression Equations.
Product of regression coefficient.
Signs of Regression Coefficient
and correlation coefficient.
Intersection of means.
Slopes .
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Angle between Regression lines

Value of r

a)

If r=0

b)

If r=+1 or -1

Angle between
Regression Lines
Regression lines are
perpendicular to each
other.
Regression lines are
coincide to become
identical .

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Properties of regression coefficients

1.Same Sign.
2.Both cannot greater than one .
3.Independent of origin but not of scale .
4.Arithmetic mean of regression coefficients
are greater than Correlation coefficient.
5.r,bxy and byx have same sign.
6 .Correlation coefficient is the Geometric
Mean (GM) b/w regression coefficients.
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Independent of origin but not of

scale.

This property states that if the original pairs of

variables is (x,y) and if they are changed to the
pair (u,v), where x=a + p u and y=c +q v
or
q
xa
u=
and
p
y c
v=
q

buv =
b vu

bxy and

p
q
= b yx
p

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Normal Equations

Regression line Y on X

Y = a + bX

The two normal Equations are

Y = Na + b X

XY = a X + b X
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20

Calculate byx
byx =

X Y

XY
N
X

(
)

X N
2

a = Y bX
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Normal Equations

Regression line X on Y

X = a + bY

The two normal Equations are

X = Na + b Y

XY = a Y + b Y
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22

Calculate bxy

bxy =

X Y

XY
N
Y

(
)

Y N
2

a = X bY
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Population Linear Regression Model

Relationship between variables is described

by a linear function
The change of the independent variable
causes the change in the dependent variable
Y-Intercept

Y =
Dependent
(Response)
Variable

Random
Error

Slope
a

bx

+ i
Independent
(Explanatory)
Variable

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Sample Linear Regression

Using Ordinary Least Squares (OLS), we can find the

values of a and b that minimize the sum of the
squared residuals:

(
n

Yi Yi

)=
e
2

=i 1 =i 1

2
i

Partial Differentiate w.r.t parameters a and b then ,we

will get the two normal equations

Y = Na + b X

2
XY
=
a
X
+
b
X

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From the following Data Calculate

Coefficient of correlation
X

Advertisement
Exp. (Rs. lakhs)
Y
10
Sales
(Rs.lakhs)

20

30

50

40

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a .Find out Two Regression

Equations
b. calculate coefficient of correlation
c.Estimate the likely sales when
advertising expenditure is Rs.7 lakhs.
d. What should be the advertising
expenditure if the firm wants to attain
sales target of Rs.80 lakhs.

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1
2
3
4
5

10
20
30
40
50

1
4
9
16
25

100
400
900
1600
2500

10
40
90
160
250

=15

=150

=55

=5500

=550

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Regression

XY

28

Regression Equation of X on Y :
X c=a + b Y
Then the normal Equations are

X = Na + b Y

2
XY
=
a
Y
+
b
Y

Substituting the values in the above

equations:
1
15=5a+150b
550=150a+5500b
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29

Regression Equation of Y on X :
Yc=a + b X
Then the normal Equations are

Y = Na + b X

XY = a

Substituting the values in the above

equations:
1
150=5a+15b
550=15a+55b
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X+b

X2

2
30

Regression line X on Y

X c = 0.01Y

Regression line Yon X

Yc = 10X

Correlation coefficient r=1.0

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c) Sales (Y) when the advertising 7

Expenditure (X) is Rs.7lakhs
Y=10x=10*7=70
d) Advertising Expenditure (X) to attain
sales (Y) target of 80lakhs.
X=0.1Y=0.1*80=8.0

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Measure of Variation:
The Sum of Squares

SST

Total
=
Sample
Variability

SSR
Explained
Variability

SSE

Unexplained
Variability

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Measure of Variation:
The Sum of Squares

SST = Total Sum of Squares

Measures the variation of the Yi values
around their mean Y
SSR = Regression Sum of Squares
Explained variation attributable to the
relationship between X and Y
SSE = Error Sum of Squares
Variation attributable to factors other
than the relationship between X and Y
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Coefficient of determination(r2)

The coefficient of determination is the square

of the coefficient of correlation. It is equal to
r2 .
The maximum value of r2 is unity and in the
case of all the variation in Y is explained by
the variation in X ,it is defined as
Coefficient of determination( r2 )
=

Explained var inace

TotalVaria nce

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Coefficient of non-determination(k2)

Coefficient of non-determination(k2)=1-r2
Un exp lained var inace
=
TotalVaria nce

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Example
In a partially destroyed record the
following data are available :
Variance of x =25,
Regression equation of X on Y : 5X-Y=22
Regression equation of Y on X :
64X-45Y=24
Find
a) Mean values of X and Y ;
b) Coefficient of correlation between x and Y
c) Standard deviation of Y

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Solution

A) the mean values of X and Y lie on the

regression lines and are obtained by solving
the given regression equations.

5x y = 22

64x 45y = 24

Multiplying (1) by 45 ,we get

225x 45y = 990
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38

Subtracting (2) from (3)

161x = 96
x=6
Putting x = 6 in (1) ,we get ;
30 y = 22
y =8

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B) the regression equation y on x is :

64x-45y=24
64
y =
x
45
8
+
y =
15
64
by x =
65

24
25
64
x
65

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Again regression equation x on y is 5x-y=22

22 1
+ x
x=
25 5
1
b xy =
5

r = bxy .b yx
64 1 8
=
. =
45 5 15

+ve sign with r is taken as both the regression

coefficients bxy and byx are positive
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Solution

Now it is given that

V (x ) = x2 = 25
8
64
x = , b yx =
15
45
y
b yx = r .
x
64 8 y
40
=
y =
= 13.33
45 15 5
3
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Example

If the relationship between x and u

is u+3x=10 between two other
variables y and v is 2y+5v=25 ,and
the regression coefficient of y on x
is known as 0.80,what would be the
regression coefficient v on u ?

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Solution

Given u+3x=10
u=10-3x

2y+5v=25

b yx

q
= b vu
p

10

u =
1

25

2
v =
5

5 2
b vu
1
3
2
8
=

=
b
0
.
80
vu Statistics:
Quantitative Aptitude & Business
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75
Regression
0.80 =

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1.bxy and byx are

(a) independent of both change of scale and
origin
(b) independent of the change of scale and
not of origin
(c)independent of the change of origin and
not of scale
(d) neither independent of change of scale
nor of origin
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1.bxy and byx are

(a) independent of both change of scale
and origin
(b) independent of the change of scale
and not of origin
(c) independent of the change of origin
and not of scale
(d) neither independent of change of scale
nor of origin
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2.bxy measures
(a) the changes in y corresponding to a
unit change in x
(b) the changes in x corresponding to a
unit change in y
(c) the changes in xy
(d) the changes in yx
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2.bxy measures
(a)the changes in y corresponding to
a unit change in x
(b)the changes in x corresponding to
a unit change in y
(c) the changes in x y
(d)the changes in y x
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3.The coefficient of determination is defined by

the formula
un exp lained var iance
2
(a) r =1
total var iance

(b)

r2 =

exp lained var iance

total var iance

(c) both
(d) none of these
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3.The coefficient of determination is defined by

the formula
un exp lained var iance
(a) r2= 1
total var iance
(b) r2=

exp lained var iance

total var iance

( c) both
(d) none of these
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4.The method applied for driving the regression

equations is known as
(a) least squares
(b) concurrent deviation
(c) product moment
(d) normal equation

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4.The method applied for driving the

regression equations is known as
(a) least squares
(b) concurrent deviation
(c) product moment
(d) normal equation
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5.The two lines of regression become

identical when
(a) r=1
(b) r=1
(c) r=0
(d) (a) or (b)
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5.The two lines of regression become

identical when
(a) r=1
(b) r=1
(c) r=0
(d) (a) or (b)
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6.The term regression was first used in

the year 1877 by _____
(a) Karl Pearson
(b) A. L. Bowley
(c) R. A. Fisher
(d) Sir Francis Galton
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6.The term regression was first used in

the year 1877 by _____
(a) Karl Pearson
(b) A. L. Bowley
(c) R. A. Fisher
(d) Sir Francis Galton
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7.If regression lines are perpendicular

to each other, the value of r will be __
(a)+1
(b)1
(c) 0
(d) none of these
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7.If regression lines are perpendicular

to each other, the value of r will be __
(a) +1
(b) 1
(c) 0
(d) none of these
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8.X=50; Y=30; XY=1000;

X2=3000; Y2=180; n=10, the value
of byx will be
(a)0.6132
(b)1.3636
(c) 0.3090
(d) none of these
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8.X=50; Y=30; XY=1000;

X2=3000; Y2=180;n=12,the value of
byx will be
(a) 0.6132
(b)
1.3636
(c) 0.3090
(d)none of these
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9.The standard error of an estimate is

Zero ,r will be--A) 1
B)+1
C)-1
D) none of these
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9.The standard error of an estimate is

Zero ,r will be--A) 1
B)+1
C)-1
D) none of these
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10.If there are two variables x and

y,then the number of regression
equations could be
A)1
B)2
C) Any number
D)3
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10.If there are two variables x and

y,then the number of regression
equations could be.
A)1
B)2
C) Any number
D)3
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11. The regression coefficients are

Zero if r is equal to----A) 2
B) -1
C) 1
D) 0
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11 The regression coefficients are Zero

if r is equal to----A)2
B)-1
C)1
D)0
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12 .When r =0 then Cov(x,y)----is equal

to
A) +1
B) -1
C) 0
D) 3
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12 .When r =0 then Cov(x,y)----is equal

to
A)+1
B)-1
C)0
D)3
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13.If r=1 ,then the standard error of

estimate will be
A) Zero
B)+1
C) -1
D) none of these
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13.If r =1 ,then the standard error of

estimate will be
A) Zero
B)+1
C) -1
D) none of these
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14.If bxy=+0.8,then the value of byx

can be
A)+1.25
B)-1.25
C)+1.26
D)-1.24
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14.If bxy=+0.8,then the value of byx

can be
A)+1.25
B)-1.25
C)+1.26
D)-1.24
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15 ____Gives the mathematical

relationship between the variables.
A) Correlation
B) Regression
C) Both
D) None
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15 ____Gives the mathematical

relationship between the variables.
A) Correlation
B) Regression
C) Both
D) None
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16. Equations of two lines of

regression are 4x+3y+7 = 0 and 3x+
4y + 8 = 0, the mean of x and y are
A) 5/7 and 6/7
B) 4/7 and 11/7
C) 2 and 4
D) None of these
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16. Equations of two lines of regression are

4x+3y+7 = 0 and 3x+ 4y + 8 = 0, the mean of
x and y are
A) 5/7 and 6/7
B) 4/7 and 11/7
C) 2 and 4 c
D) None of these
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17. Two lines of regression are given by

5x+7y22=0 and 6x+2y22=0. If the variance
of y is 15, find the standard deviation of x?
5
A)
7
B)
C)
6
8
D)
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17. Two lines of regression are given by

5x+7y22=0 and 6x+2y22=0. If the variance
of y is 15, find the standard deviation of x?
5
A)
7
B)
C)
6
8
D)
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18. If 2x + 5y 9 = 0 and 3x y 5 = 0 are two

regression equation, then find the value of
mean of x and mean of y.
A) 2,1
B) 2,2
C) 1,2
D) 1,1
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18. If 2x + 5y 9 = 0 and 3x y 5 = 0 are two

regression equation, then find the value of
mean of x and mean of y.
A) 2,1
B) 2,2
C) 1,2
D) 1,1
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19. If one of the regression coefficients is

greater than unity, then other is less than
unity.
A) True
B) False
C) Both
D) None of these
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19. If one of the regression coefficients is

greater than unity, then other is less than
unity.
A) True
B) False
C) Both
D) None of these
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20. The two regression lines obtained from

certain data were y = x + 5 and 16x = 9y 94.
Find the variance of x if variance of y is 16.
A) 4/16
B) 9
C) 1
D) 5/16
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20. The two regression lines obtained from

certain data were y = x + 5 and
16x = 9y 94.
Find the variance of x if variance of y is 16.
A) 4/16
B) 9
C) 1
D) 5/16
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21. For a mn two way or bivariate frequency

table, the maximum number of marginal
distributions is .
A) m
B) n
C) m +n
D) m .n
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21. For a mn two way or bivariate frequency

table, the maximum number of marginal
distributions is .
A) m
B) n
C) m +n
D) m .n
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THE END
Regression