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Regression Analysis

Regression analysis shows the relationship between two variables and can be used to predict or forecast values. Sir Francis Galton first used the term "regression" in 1877 to describe how children's heights tended to regress toward the average height of the population. Regression analysis develops an estimating equation to relate a dependent variable to one or more independent variables. The estimating equation can then be used to predict the value of the dependent variable based on the independent variable(s).

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218 views14 pages

Regression Analysis

Regression analysis shows the relationship between two variables and can be used to predict or forecast values. Sir Francis Galton first used the term "regression" in 1877 to describe how children's heights tended to regress toward the average height of the population. Regression analysis develops an estimating equation to relate a dependent variable to one or more independent variables. The estimating equation can then be used to predict the value of the dependent variable based on the independent variable(s).

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pranay
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Regression Analysis

Meaning and Origin


• Regression and correlation analyses show us how to determine
both the nature and the strength of a relationship between two
variables.

• The term regression was first used as a statistical concept in


1877 by Sir Francis Galton

• Galton made a study that shoed that the height of children born
to tall parents tends to move back or regress toward the mean
height of population.

• He designed the word regression as the name of the general


process of predicting one variable from another.
Continued……
• In Regression analysis, we shall develop an estimating
equation- that is, a mathematical formula that relates the
known variables to the unknown variable.
• The Statistical technique that expresses a functional (algebric
relationship between two or more variables in the form of an
equation to estimate the value of a variable, based on the given
value of another variable is called Regression analysis
• The variable whose value is to be estimated is called
dependent ( or response) variable and the variable whose value
is used to estimate this is called independent ( regressor or
predictor) variable.
• In regression, we can have only one dependent variable in our
estimating equation
• However, we can use more than one independent variable.
Usages of Regression
• Regression analysis helps in prediction or forecasting of the
data.
• Areas
– Population and deforestation
– Income and expenditure
– Price and supply of commodity
– Price and demand for commodity
– Sale of Woolen garments and the day temperature
– Sales and advertisement
– Forecasting in the stock Market
– Tax rate and price
Types of Regression Models
• A regression model is an algebraic equation between two variables
based on the given data and estimating the value of a dependent
variable based on the known values of one or more independent
variable.
• Simple and Multiple Regression Models
• If a regression model represents the relationship between a
dependent, Y, and only one independent variable, X, then such
model is called a simple regression model.
• If more than one independent variable is associated with a
dependent variable, then such a regression model is called a multiple
regression model.
• For example:
• Sales turnover of a product ( a dependent variable) is associated
with more than one independent variables such as price of the
product, expenditure on advertisement, quality of the product,
Competitors.
• Linear and Non-Linear Regression Models
• If the change (increase or decrease) in the values of a
dependent (response) variable Y in a regression model is
directly proportional to a unit change (increase or decrease) in
the values of independent (predictor ) variable X, then such a
model is called a linear regression model.

• X = 1, 2, 3, 4, 5, 6,
• Y = 5, 7, 9, 11, 13
• Y = 3 +2X

• A non-linear relationship implies that directly proportional to a


unit change in the value of the independent variable, X.
Regression Line
• Regression line is a line that gives the best estimation of one
variable for any given value of other variable. If we are having
two variables say X and Y, then we will have two regression
lines i.e. regression of X on Y and the regression of Y on X.

• Line of regression of Y on X is the line which gives the


estimated value of Y for any specified value of X.

• Similarly, the line of regression of X on Y is the line which


gives the estimated value of X for any specified value of Y.
Regression Equations
• Regression equations, also known as estimating equations, are
algebraic expressions of the regression lines.

• Since there are two regression lines, there are two regression
equations:
• The regression equations of X on Y is used to describe the
variations in the values of X for a given changes in Y and

• The regression equation of Y on X is used describe the


variation in the values of Y for given changes in X.
Estimation of Regression Equation

Method of Least Square


Example
• Annual Truck-Repair Expenses

Repair Expenses (Y) Age of Truck (X)


5 7
3 7
3 6
1 4
∑X=12 ∑Y=24

• From the above data


• Estimate the regression Equation
• Find the value of Y when X is 10
Solution
Age of Truck(X) Repair XY X2 Y2
Expenses(Y)
5 7 35 25 49
3 7 21 9 49
3 6 18 9 36
1 4 4 1 16
∑X=12 ∑Y=24 ∑XY=78 ∑X2= 44 ∑Y2=150

• We need to find out the values of a and b.


Standard Error of Estimate
• The Standard error of estimate measures the variability, or
scatter, of the observed values around the regression line.

• Short-cut Method
Example
• Annual Relationship between Research and Development and
Profits

Year Exp. For R&D Annual XY X2


(X) Profits (Y)
1995 5 31 155 25
1994 11 40 440 121
1993 4 30 120 16
1992 5 34 170 25
1991 3 25 75 9
1990 2 20 40 4
30 180 1000 200

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