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Linear Regression Correlation Analysis

The document discusses correlation analysis and linear regression. It defines correlation as a statistical method to determine the strength of the relationship between two variables. The correlation coefficient (r) indicates the strength and direction of this relationship, ranging from -1 to 1. Linear regression finds the linear "best fit" relationship between a dependent (y) and independent (x) variable. It calculates the slope (b) and y-intercept (a) of the regression line using the least squares method to estimate the linear relationship between the variables. Statistical tests determine if the regression model and its coefficients are statistically significant.

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Salami Jama
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203 views24 pages

Linear Regression Correlation Analysis

The document discusses correlation analysis and linear regression. It defines correlation as a statistical method to determine the strength of the relationship between two variables. The correlation coefficient (r) indicates the strength and direction of this relationship, ranging from -1 to 1. Linear regression finds the linear "best fit" relationship between a dependent (y) and independent (x) variable. It calculates the slope (b) and y-intercept (a) of the regression line using the least squares method to estimate the linear relationship between the variables. Statistical tests determine if the regression model and its coefficients are statistically significant.

Uploaded by

Salami Jama
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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LINEAR

REGRESSION &
CORRELATION
ANALYSIS
CHAPTER 6
CORRELATION ANALYSIS
 Correlation is a statistical method used to
determine the strength between two
variables. (x and y)

 The value that used to estimate the strength is


called the correlation coefficient.

 The symbol for the population correlation


coefficient is  (rho).
 The symbol for the sample correlation
coefficient is r.

 Therange of the correlation coefficient is


from -1 to +1.

 Thepositive (+) and negative (-) signs


shows the direction of the relationship
between two variables.
 Negative values indicate an inverse
relationship and positive values indicate a
direct relationship.
• Values of -1.00 or +1.00 indicate perfect and
strong correlation.

• Values close to 0.0 indicate weak correlation


Correlation Coefficient
 Refer Page 254 : Example 7

Representati
Sales Calls Units Sold
ve
Correlation Coefficient

n XY    X  Y 
r
n X    X  n Y    Y  
2 2 2 2
109661  199 408
r
104681  199 1020510  408 
2 2

r  0.924
What does this correlation means?

 First, it is positive, so we see there is a direct


relationship between number of sales calls and
number of units sold.

 The value of 0.924 is really close to 1.00, so


the relationship between number of sales calls
and number of units sold is strong.

 So we conclude that there is a strong positive


relationship between sales calls and number of
units sold.
THE SIGNIFICANCE OF THE
CORRELATION COEFFICIENT
 Test
on the value of correlation coefficient
need to be done to see whether there is
a significance relationship between the
two variables.

 We will test H0 :   0
H1 :   0
 Step 1 : Hypotheses
H0 :   0
H1 :   0

 Step 2 : Test Statistics

r n2
t
1 r 2
0.924 10  2

1  0.924 
2

 6.8345
 Step 3 : Critical Value
 df = n – 2 = 10 – 2 = 8
  = 0.05/2  two-tailed test
CV = t 

0.05 / 2 ,8  2.306
 Step 4 : Decision
 Reject H0

 Conclusion
 There is a significance relationship between
number of sales calls and number of units
sold.
Coefficient of Determination, r2
 The proportion of the total variation in the
dependent variable, Y that is explained by the
variation in the independent variable, X.
 In previous example, r = 0.924.
 So r2 = (0.924)2 = 0.854
 85.4% variation in the units sold is explained by
the variation in the sales calls.
 The greater value of r2 means that the model
can be a better predictor to predict the value
of Y.
REGRESSION ANALYSIS
 Regression is a statistical method used to
describe the nature of the relationship
between variables – that is: positive or
negative, linear or nonlinear.

 Regression analysis also can model the


relationship between variables.

 Thedependent variable is Y and the


independent variable is X.
 Analysis on a linear relationship between
Y and X is called a simple linear regression
analysis.

 Ifthe value of the correlation coefficient is


significant, the next step is to determine
the equation of the regression line which is
referred to as the “best-fitting” line.

 To get the equation, we will use the least


square method.
Refer to Example 1,
Page 241
Units Sold
80
70
60
Units 50
Sold 40
30
20
10
0
0 10 20 30 40
Sales Calls
 Fromthe plot, the data seems to be linear
and the appropriate model to be
construct is  y = mx + c
Computing the Slope of the
Line and the Y-intercept

n XY    X  Y 
Slope b
 
n  X 2   X 
2

Y X
Y-intercept a b
n n
Refer to Self Example 2,
Page 244
b  2.1387 a  1.7601

Yˆ  a  bX Yˆ  1.7601  2.1387 X

LINEAR REGRESSION EQUATION


 a -- The intercept with the y-axis is below the
origin (0,0).

 b – An increase of one call made, will result in


an increase of 2.1387 (= 2) units sold.
Estimates the number of units
sold when 20 calls was made
in a month.

Yˆ  1.7601  2.1387 X
Yˆ  1.7601  2.138720 

Yˆ  41.0139
Linear Regression by SPSS
Testing the Significance of the Model @
Global Test – using output
Step 1 : H0 :   0
H1 :   0
Step 2 : p-value = 0.000 (Refer to the ANOVA table)

Step 3 : compare with  = 0.05


 > p-value
Reject H0

Step 4 : Conclusion
**There is a significance relationship between
advertising expenses and sales revenue.
Testing the Significance of the
Model @ Global Test – manually
Step 1 : H0 :   0
H1 :   0
Step 2 : Test Value, F = 46.597(Refer to the ANOVA table)

Step 3 : Critical value,


F, 0.05, 1, 8 = 5.32

Step 4 : Reject H0 because TV > CV

Step 5 : Conclusion
**There is a significance relationship between
advertising expenses and sales revenue.

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