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Linear Regression

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sonal
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PREDICTIVE MODELING- WEEK-1

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DSBA CURRICULUM DESIGN
CORE DOMAIN
FOUNDATIONS COURSES APPLICATIONS

Python for Advanced


Statistics Finance and Risk
Data Science
Analytics
Data Mining
Statistical Methods
for Decision Marketing and Retail
Predictive
Analytics
Making Modelling(Week-1/
5)
Machine Learning

Time Series
Forecasting

Data Visualization

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LEARNING
OBJECTIVE OF
THIS MODULE
• Linear Regression

• Logistic Regression

• Linear Discriminant Analysis

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LEARNING OBJECTIVES OF THIS SESSION

● Multiple Linear Regression

● Concept of R2

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TRY ANSWERING THE FOLLOWING
● What is the equation of simple linear regression?

● Can we have >2 independent variables in simple linear


regression?

● Name few techniques to deal with multicollinearity in a data.

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BROAD OVERVIEW

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Industry Application - Linear Regression in Sports Analytics

Sports analytics is a booming field. Owners, coaches, and fans are using statistical measures and models of
all kinds to study the performance of players and teams.

Billy Beane the manager of Oakland As met Peter Brand, a young Yale
economics graduate with radical ideas about how to assess player
value. Rather than relying on selector’s experience and intuition,
Brand uses Linear Regression, selecting players based on their on-
base percentage (OBP) while ignoring their perceived weaknesses.
Brand and Beane use this methodology to hire undervalued players.

With one third the budget Billy Beans’ team performed at par with
the highest paid teams. This led to evolution of a new stream of
Analytics known as Sabermetics.
You may watch the Brad Pitt starrer Moneyball for Reference.

Reference:https://en.wikipedia.org/wiki/Sabermetrics

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Industry Application - Linear Regression in Financial Markets
The financial performance of a company is a primary concern for every stakeholder especially for investors.
The measurement of the financial health of a company through the reported financial statements gives a
qualitative analysis of the company’s position as well as an account of how the company has utilised its
capital in production.

These Financial Statements can be used to derive critical ratios that


are broadly divided into following categories:
•Liquidity ratios
•Leverage ratios
•Efficiency ratios
•Profitability ratios
•Market value ratios
We can obtain these ratios and the corresponding stock prices of
various listed companies to create a Linear Regression model which
predicts the stock price given we know the ratios.

Reference: https://pdfs.semanticscholar.org/0a82/305452d2fa7cdca91bdbbe6f409905ace42a.pdf

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CASE STUDY - Price Prediction(Airbnb)

Airbnb, Inc is an online marketplace for arranging or offering lodging, primarily


homestays, or tourism experiences. Airbnb has close to 150 million customers
across the world. Price is the most important factor considered by the customer
while making booking into a property. Strategic pricing of the properties is
important to avoid losing customers to the competitors.
We have a data of 74111 Airbnb properties across the nations. Based on this data
build a simple and multiple linear regression model to predict the strategic
pricing of a new listed property on Airbnb.

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ANY QUESTIONS

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Apply Data Science at your workplace to gain some instant benefits:

• Get noticed by your management with your outstanding analysis backed by data science.

• Create an impact in your organization by taking up small projects/initiatives to solve critical


issues using data science.

• Network with members from the data science vertical of your organization and seek
opportunities to contribute in small projects.

• Share your success stories with us and the world to position yourself as a subject matter expert
in data science.
HAPPY LEARNING

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