BUSINESS STATISTICS AND RESEARCH

MODULE 3C

Day 7
BRMS Team
Decision Science Area
Simple Linear Regression CMS Business School
Jain (Deemed-to-be University)

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AGENDA-Session 20
• Business Prediction Models
• Regression Analysis
• Regression Analysis – Least Square Method
• Regression Equation
• Regression Coefficients
• Properties of Regression Coefficients
• Problems
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Business Prediction Models
• Irrespective of the sector, the organizations are literally in the race
to predict the future of their organization, be it in terms of
opportunities or challenges.
• They are finding ways for prediction (Forecasting)
• Looking at some of the oldest forecasting strategies, the most
common one would be to use the historic data and forecast.
• As the data grew, the need to analyse this data using relevant tools
came up.
• Statistical tools were the result.

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Business Prediction Models
• Among many such statistical forecasting tools was regression
analysis.
• Others are simulation technique, exponential smoothing, etc.
• Regression analysis is one of the most tried & tested, popular
statistical tools for forecasting.

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Regression Analysis
• It was Sir Francis Galton who first used the term regression as a
statistical concept in 1877.
• He made a statistical study that showed that the height of children
born to tall parents tends to ‘regress’ towards the mean height of
population.
• Galton used the term regression as a statistical technique to
predict one variable (the height of children) from another variable
(the height of parents).
• This is called ‘regression’ or ‘simple regression’ confined to
bivariate data.
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Regression Analysis
• Regression analysis tells us how one variable is related to another
by providing an equation that allows us to use the known value of
one or more variables, to estimate the unknown value of the
remaining variable.
• A statistical model is a set of mathematical formulae and
assumptions which describe a real world situation.

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Regression Analysis
• Regression analysis is a mathematical measure, which helps to
determine the probable form of the relationship between
variables and it is used to predict or estimate the value of one
variable, corresponding to a given value of another variable.
• The variable being predicted is called dependent variable and
variable used to predict the value of dependent variable is called
independent variable.

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Regression Analysis
• The simplest type of regression analysis involving one
independent variable and one dependent variable in which the
relationship between the variables is approximated by a straight
line is called linear regression.
• Regression analysis involving two or more independent variables
is called multiple regression analysis.
• The relationship between two variables is quantified by
representing the line of best fit as a mathematical equation known
as regression equation.
• In other words, the linear relationship between two variables can
be described by a straight line, which is known as regression line.
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Regression Analysis
•

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Regression Analysis
•

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Regression Analysis - LEAST SQUARE METHOD
•

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Regression Analysis - LEAST SQUARE METHOD

The goal is to minimize the sum of the square of the errors of the data
points using Ei = Yi - (a+bX). This minimizes the Mean Square Error
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Regression Equations
•

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Regression Coefficients
•

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Properties of Regression Coefficients
• Correlation coefficient is the geometric mean between the
regression coefficients.
• Arithmetic mean of the regression coefficient is greater than or
equal to the correlation coefficient.
• Regression coefficients are independent of change of origin but
not of scale
• If one of the regression coefficient is greater than unity, the other
must be less than unity
• Both the regression coefficients will have the same sign, either
positive or negative.

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Problem 1
• The government of India is announcing plenty of reforms during this
pandemic period. In continuation with this activity, it has assigned the
ministry of commerce and industry to predict the relationship between
import and export values of electronic sector in the country. The ministry has
gathered the data between 2013-14 and 2018-19 from DGCIS for the
prediction. Use regression analysis to model the relation between import
& export and vice versa of the electronic data. Also predict the import for
the year 2020-21 given that the export will be USD 11 Billion.

Year 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19

Imports (US $ 32 36 40 42 51 55
Billion)
Exports (US $ Billion) 8 6 6 7 7 9
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X Y X2 Y2 XY

32 8 1024 64 256

36 6 1296 36 216

40 6 1600 36 240

42 7 1764 49 294

51 7 2601 49 357

55 9 3025 81 495

256 43 11310 315 1858

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•

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Problem 2
• Ralison Appliances Pvt. Ltd. manufactures different types of electrical
appliances in India. It has been using radio (FM) for advertising its products.
The following table shows the amounts of radio time and the number of
electrical appliances sold over seven weeks. Fit linear equations of radio time
on the number of electrical appliances sold and vice-versa. Also calculate the
sales when the radio time is 24 minutes.

Radio Time (Minutes) 25 18 32 21 35 28 30

No. of appliances sold 16 11 20 15 26 32 20

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X Y X2 Y2 XY

25 16 625 256 400

18 11 324 121 198

32 20 1024 400 640

21 15 441 225 315

35 26 1225 676 910

28 32 784 1024 896

30 20 900 400 600

189 140 5323 3102 3959

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•

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Multiple Linear Regression
• Multiple linear regression (MLR), also known simply as multiple
regression, is a statistical technique that uses several explanatory
variables to predict the outcome of a response variable.
• The goal is to model the linear relationship between the
explanatory (independent) variables and response (dependent)
variable.
• In essence, multiple regression is the extension of ordinary
least-squares regression that involves more than one explanatory
variable.

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Multiple Linear Regression
• A simple linear regression is a function that allows an analyst or
statistician to make predictions about one variable based on the
information that is known about another variable.
• Linear regression can only be used when one has two continuous
variables—an independent variable and a dependent variable.
• The independent variable is the parameter that is used to calculate
the dependent variable or outcome.
• A multiple regression model extends to several explanatory
variables.

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Multiple Linear Regression
• For example, an analyst may want to know how the movement of
the market affects the price of Exxon Mobil (XOM).
• In this case, his linear equation will have the value of the S&P 500
index as the independent variable, or predictor, and the price of
XOM as the dependent variable.

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Multiple Linear Regression
• In reality, there are multiple factors that predict the outcome of an
event.
• The price movement of Exxon Mobil, for example, depends on
more than just the performance of the overall market.
• Other predictors such as the price of oil, interest rates, and the
price movement of oil futures can affect the price of XOM and
stock prices of other oil companies.
• To understand a relationship in which more than two variables
are present, a multiple linear regression is used.

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Multiple Linear Regression
• Multiple linear regression is used to determine a mathematical
relationship among a number of random variables.
• In other terms, it examines how multiple independent variables
are related to one dependent variable.
• Once each of the independent factors has been determined to
predict the dependent variable, the information on the multiple
variables can be used to create an accurate prediction on the level
of effect they have on the outcome variable.
• The model creates a relationship in the form of a straight line
(linear) that best approximates all the individual data points.
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Multiple Linear Regression
A two-variable multiple linear regression equation is given as:

Y = a + b 1X1 + b 2X2

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Questions ?

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Problem 3
• People in the aerospace industry believe the cost of a space project is a
function of the weight of the major object being sent into space. Use the
following data to develop a regression model to predict the cost of a space
project by the weight of the space object.

Weight (Tons) 2 3 1 1.5 1.25 2 2.5

Cost ($ millions) 53.5 185 7 24 34 110 104

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Problem 4
• The editor-in-chief of Bangalore Mirror has been trying to convince the
paper’s owner to improve the working conditions in the press room. He is
convinced that the noise level, when the presses are running, creates
unhealthy levels of tension and anxiety. He recently had a psychologist
conduct a test during which pressmen were placed in rooms with varying
levels of noise and then given a test to measure mood and anxiety levels. The
following table shows the index of their degrees of nervousness and the level
of noise to which they were exposed (5 is low and 10 is high). Develop
estimating equations. Also predict the degrees of nervousness that we might
expect when the noise level is 7.5

Noise Level 7.0 6.5 5.5 6.0 8.0 8.5 6.0 6.5
Degree of Nervousness 23 38 45 36 16 18 39 41

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Problem 5
• As a part of a study on transportation safety, Karnataka State Government
collected data on number of fatal accidents per 1000 licenses and percentage
of licensed drivers under the age of 21 in 10 cities of the state. The data is
tabulated as below. Fit linear equations to the above data.

Fatal Accidents per 1000

2.6 3.8 0.8 1.2 0.6 1 2.8 1.4 1.8 2
licenses
Percent of licensed drivers
17 18 8 13 6 9 16 12 9 10
under 21 years

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Problem 6
• A researcher at Jain University wished to investigate if there is any
relationship between atmospheric temperature (in oC) and the number of
Covid-19 cases. In this regard, the researcher collected the following data
from among 12 random states in India. Model the relation between the
temperature and the Covid-19 cases. Also estimate the number of Covid-19
cases when the temperature is 8oC

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Problem 6
State Average Temperature (oC) No. of Covid-19 Cases
HP 17 38
J&K 18 540
UP 33 2055
Delhi 32.5 5894
Chhattisgarh 35 29
West Bengal 30.5 1818
Karnataka 27 535
Andhra Pradesh 32 952
Tamil Nadu 34 8423
Gujarat 38 6906
Goa 30 10
Rajasthan 37 2522 bschool.cms.ac.in
Problem 7
• Hyundai Motor India Ltd has recently held 3-day road-side exhibits on the
introduction of its new model of Creta. The number of sales personnel
employed at each of a sample of 10 exhibitions and the number of cars
booked at each one are given as follows. Using these data, regress the number
of cars booked on the number of salesmen and obtain the regression
equation. Also estimate the number of cars booked if 10 salesmen are
employed on an exhibition.

No. of Salesman 5 8 6 8 9 3 5 4 6 6

No. of Cars booked 132 160 148 156 168 102 142 98 152 142

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Problem 8
• ITI Limited recorded data showing the experience of machine operators and
their performance rating as given by the number of good parts turned out per
100 pieces. Obtain the regression equation of performance rating on
experience. Use this equation to estimate the probable performance if an
operator has 7 years of experience.

Operator 1 2 3 4 5 6 7 8

Experience (Years) 16 12 18 4 3 10 5 12

Performance Rating 87 88 89 68 78 80 75 82
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Thanks !

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