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Line of regression part 1

This document covers the fundamentals of regression analysis, focusing on predicting dependent variable values based on independent variables and understanding regression coefficients. It distinguishes between correlation and regression, explains the simple linear regression model, and provides examples of data analysis using tools like Excel. Key concepts include the least squares method, interpretation of slope and intercept, and practical applications in real estate pricing.

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Krishnam Kothari
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Download as PDF, TXT or read online on Scribd
4 views

Line of regression part 1

This document covers the fundamentals of regression analysis, focusing on predicting dependent variable values based on independent variables and understanding regression coefficients. It distinguishes between correlation and regression, explains the simple linear regression model, and provides examples of data analysis using tools like Excel. Key concepts include the least squares method, interpretation of slope and intercept, and practical applications in real estate pricing.

Uploaded by

Krishnam Kothari
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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BCOM Day +Morning

Business Mathematics & Statistics


BCHRGE340T
Line of RegressionRegression
Objectives
In this chapter, you learn:
▪ How to use regression analysis to predict the value of a
dependent variable based on a value of an independent
variable
▪ To understand the meaning of the regression coefficients b0
and b1
▪ To evaluate the assumptions of regression analysis and know
what to do if the assumptions are violated
▪ To make inferences about the slope and correlation
coefficient
▪ To estimate mean values and predict individual values
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
12.1 Regression Models DCOVA

Linear relationships Curvilinear relationships

Y Y

X X

Y Y

X X
Types of Relationships DCOVA

(continued)
Strong relationships Weak relationships

Y Y

X X

Y Y

X X
Types of Relationships DCOVA
(continued)
No relationship

X
12.2 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
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
Simple Linear Regression Model
DCOVA

Population Random
Population Independent Error
Slope
Y intercept Variable term
Coefficient
Dependent
Variable

Linear component Random Error


component
Simple Linear Regression
Model DCOVA
(continued)

Y
Observed Value
of Y for Xi

εi Slope = β1

Predicted Value Random Error for this Xi


of Y for Xi value

Intercept = β0

Xi X
Simple Linear Regression Equation
(Prediction Line) DCOVA

The simple linear regression equation provides an


estimate of the population regression line

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

Value of X for
observation i
The Least Squares Method
DCOVA
b0 and b1 are obtained by finding the values that
minimize the sum of the squared differences between Y
and Y : ∧
Finding the Least Squares Equation
DCOVA
▪ The coefficients b0 and b1, and other regression
results in this chapter, will be found using Excel
or Minitab

Formulas are shown in the text for those


who are interested
Interpretation of the
Slope and the Intercept
DCOVA
• b0 is the estimated mean value of Y when the
value of X is zero

• b1 is the estimated change in the mean value of


Y as a result of a one-unit increase in X
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
Simple Linear Regression Example:
Data DCOVA

House Price in $1000s Square Feet


(Y) (X)
245 1400
312 1600
279 1700
308 1875
199 1100
219 1550
405 2350
324 2450
319 1425
255 1700
Simple Linear Regression Example: Scatter Plot
DCOVA

House price model: Scatter Plot


Simple Linear Regression Example: Using Excel
Data Analysis Function
(continued)
Enter Y range and X range and desired options DCOVA
Simple Linear Regression Example: Using Excel
Data Analysis Function
DCOVA
1. Choose Data 2. Choose Data Analysis
3. Choose Regression
Simple Linear Regression Example:
Using PHStat
Add-Ins: PHStat: Regression: Simple Linear Regression
Calculate the regression coefficient and obtain the lines of regression for the following data
Solution:
Regression coefficient of X on Y

(i) Regression equation of X on Y


Y = 0.929X–3.716+11
= 0.929X+7.284
The regression equation of Y on X is Y= 0.929X + 7.284
How to Calculate Coefficients (cont.)
• Add up the crossproducts over all cases.
• The sum (and thus the average) of crossproducts is
– positive in the event of (a) above,
– negative in the event of (b) above, and
– (close to) zero in the event of (c) above.
• Divide the sum of the crossproducts by the number of cases to get the
average (mean) crossproduct. This average is called the covariance of X
and Y, and its formula is the bivariate parallel to the univariate variance
(of X or Y).
Thank you

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