Correlation vs.

Regression
DCOVA
 A scatter plot can be used to show the
relationship between two variables
 Correlation analysis is used to measure the
strength of the association (linear relationship)
between two variables
 Correlation is only concerned with strength of the
relationship
 No causal effect is implied with correlation
 Scatter plots were first presented in Ch. 2
 Correlation was first presented in Ch. 3

Copyright © 2015, 2012, 2009 Pearson Education, Inc. Chapter 13, Slide 1
 Types of Relationships
DCOVA

Linear relationships Curvilinear relationships

Y Y

X X

Y Y

X X
Copyright © 2015, 2012, 2009 Pearson Education, Inc. Chapter 13, Slide 2
 Types of Relationships
DCOVA
(continued)
Strong relationships Weak relationships

Y Y

X X

Y Y

X X
Copyright © 2015, 2012, 2009 Pearson Education, Inc. Chapter 13, Slide 3
Types of Relationships
DCOVA
(continued)
No relationship

X
Copyright © 2015, 2012, 2009 Pearson Education, Inc. Chapter 13, Slide 4
 Introduction to
Regression Analysis
DCOVA
 Regression analysis is used to:
 Predict the value of a dependent variable based on
the value of at least one independent variable
 Explain the impact of changes in an independent
variable on the dependent variable
Dependent variable: the variable we wish to
predict or explain
Independent variable: the variable used to predict
or explain the dependent
variable

Copyright © 2015, 2012, 2009 Pearson Education, Inc. Chapter 13, Slide 5
 Simple Linear Regression
Model
DCOVA
 Only one independent variable, X
 Relationship between X and Y is
described by a linear function
 Changes in Y are assumed to be related
to changes in X

Copyright © 2015, 2012, 2009 Pearson Education, Inc. Chapter 13, Slide 6
Simple Linear Regression
Equation (Prediction Line) DCOVA
The simple linear regression equation provides an
estimate of the population regression line

Estimated
(or predicted) Estimate of Estimate of the
Y value for the regression regression slope
observation i intercept

Value of X for

Ŷi  b0  b1Xi
observation i

Copyright © 2015, 2012, 2009 Pearson Education, Inc. Chapter 13, Slide 7
Interpretation of the
Slope and the Intercept
DCOVA

 b0 is the estimated average value of Y

when the value of X is zero

 b1 is the estimated change in the

average value of Y as a result of a
one-unit increase in X

Copyright © 2015, 2012, 2009 Pearson Education, Inc. Chapter 13, Slide 8
 Simple Linear Regression
Example DCOVA

 A real estate agent wishes to examine the

relationship between the selling price of a home
and its size (measured in square feet)

 A random sample of 10 houses is selected

 Dependent variable (Y) = house price in $1000s

 Independent variable (X) = square feet

Copyright © 2015, 2012, 2009 Pearson Education, Inc. Chapter 13, Slide 9
 Simple Linear Regression
Example: Interpretation of bo
DCOVA

houseprice  98.24833  0.10977 (square feet)

 b0 is the estimated average value of Y when the

value of X is zero (if X = 0 is in the range of
observed X values)
 Because a house cannot have a square footage
of 0, b0 has no practical application

Copyright © 2015, 2012, 2009 Pearson Education, Inc. Chapter 13, Slide 10
 Simple Linear Regression
Example: Interpreting b1 DCOVA

houseprice  98.24833  0.10977 (square feet)

 b1 estimates the change in the average

value of Y as a result of a one-unit
increase in X
 Here, b1 = 0.10977 tells us that the mean value of a
house increases by .10977($1000) = $109.77, on
average, for each additional one square foot of size

Copyright © 2015, 2012, 2009 Pearson Education, Inc. Chapter 13, Slide 11
 Simple Linear Regression
Example: Making Predictions
DCOVA
Predict the price for a house
with 2000 square feet:

houseprice  98.25  0.1098 (sq.ft.)

 98.25  0.1098(2000)

 317.85
The predicted price for a house with 2000
square feet is 317.85($1,000s) = $317,850
Copyright © 2015, 2012, 2009 Pearson Education, Inc. Chapter 13, Slide 12
 Simple Linear Regression
Example: Making Predictions
DCOVA
 When using a regression model for prediction,
only predict within the relevant range of data
Relevant range for
interpolation
450
400
House Price ($1000s)

350
300
250
200
150
100
50 Do not try to
0
extrapolate
0 500 1000 1500 2000 2500 3000
beyond the range
Square Feet
of observed X’s
Copyright © 2015, 2012, 2009 Pearson Education, Inc. Chapter 13, Slide 13