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Unit 3

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7 views20 pages

Unit 3

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anusha.m
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We take content rights seriously. If you suspect this is your content, claim it here.
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UNIT III -Regression

Introduction to Regression

Regression analysis is a statistical


technique used to understand the
relationship between variables.

It helps in predicting the value of a


dependent variable based on one or
more independent variables.

Regression can be simple or multiple,


depending on the number of
predictors involved.
Types of Regression

The most common type is linear


regression, which assumes a linear
relationship between variables.

Other types include polynomial


regression, logistic regression, and
ridge regression among others.

Each type serves different purposes


and is suited for various data
characteristics.
The Blue Property Assumptions

The BLUE property stands for Best


Linear Unbiased Estimator, important
in the context of Ordinary Least
Squares (OLS).

Key assumptions include linearity,


homoscedasticity, independence,
normality, and no multicollinearity.

When these assumptions hold, the


OLS estimators are efficient and
unbiased, providing reliable results.
Linearity Assumption

The linearity assumption posits that


the relationship between the
independent and dependent variables
is linear.

This means that changes in the


predictor lead to proportional changes
in the response variable.

Violation of this assumption can lead


to biased estimates and reduced
predictive power.
Homoscedasticity Assumption

Homoscedasticity implies that the


variance of the errors is constant
across all levels of the independent
variable.

If this assumption is violated, it can


lead to inefficient estimates and affect
the validity of hypothesis tests.

Tools like residual plots can be used to


check for homoscedasticity in a
regression model.
Least Squares Estimation

Least Squares Estimation aims to


minimize the sum of the squared
differences between observed and
predicted values.

This method provides a way to


estimate the coefficients in a
regression model.

The estimated coefficients represent


the average change in the dependent
variable for a one-unit change in an
independent variable.
Interpretation of Coefficients

Each coefficient in a regression model


indicates the strength and direction of
the relationship with the dependent
variable.

A positive coefficient suggests a direct


relationship, while a negative
coefficient indicates an inverse
relationship.

Understanding these coefficients is


crucial for making informed decisions
based on the model.
Variable Rationalization

Variable rationalization involves


selecting the most relevant variables
for inclusion in a regression model.

This process helps to improve model


performance and interpretability while
avoiding overfitting.

Techniques like stepwise regression or


LASSO can assist in determining
which variables to retain.
Model Evaluation Metrics

Common metrics for evaluating


regression models include R-squared,
Adjusted R-squared, and Mean
Squared Error (MSE).

R-squared indicates the proportion of


variance explained by the model,
while Adjusted R-squared accounts for
the number of predictors.

MSE provides insight into the average


error of the predictions, helping to
assess model accuracy.
Conclusion and Applications

Regression analysis is an invaluable


tool across various fields such as
economics, biology, and social
sciences.

Understanding the underlying


assumptions and methods ensures
that the models created are both valid
and reliable.

With proper application, regression


can lead to meaningful insights and
predictions that inform decision-
making.
Steps in Regression Model Building

The first step involves data collection


and preprocessing, ensuring that the
dataset is clean and relevant for
analysis.

Next, exploratory data analysis (EDA)


is performed to understand data
distributions and detect patterns or
anomalies.

Finally, the model is trained,


validated, and tested, with
performance metrics evaluated to
ensure robustness and accuracy in
predictions.
Introduction to Logistic Regression

Logistic Regression is a statistical


method used for binary classification.

It predicts the probability of a


particular class or event occurring.

The model is particularly useful when


the dependent variable is categorical.
Model Theory

Logistic Regression models the


relationship between independent and
dependent variables using a logistic
function.

The output of the model is a value


between 0 and 1, representing the
probability of the positive class.

The log-odds transformation is utilized


to linearize the relationship between
the predictors and the outcome.
Assumptions of Logistic Regression

The dependent variable must be


binary or dichotomous.

Independent variables can be


continuous, binary, or categorical.

Observations should be independent


of each other, and multicollinearity
among predictors should be minimal.
Model Fit Statistics

Common measures of model fit


include the Likelihood Ratio Test, AIC,
and BIC.

The Hosmer-Lemeshow test assesses


the goodness-of-fit for logistic
regression models.

Pseudo R-squared values, such as


McFadden's R-squared, provide an
indication of how well the model
explains the variation in the outcome.
Evaluating Model Performance

The Receiver Operating Characteristic


(ROC) curve is a graphical
representation of model performance.

The Area Under the Curve (AUC)


quantifies the model's ability to
differentiate between classes.

Confusion matrices summarize the


performance of the model by
comparing predicted and actual
classifications.
Model Construction Steps

Begin by selecting relevant predictors


and preparing the dataset for
analysis.

Fit the logistic regression model using


appropriate software or programming
languages.

Validate the model using techniques


such as cross-validation to ensure its
reliability and generalizability.
Applications in Business Domains

In healthcare, logistic regression is


used to predict patient outcomes,
such as the likelihood of disease
presence based on risk factors.

In finance, it assists in credit scoring


by evaluating the probability of
default, enabling better risk
management.

E-commerce platforms utilize logistic


regression for customer segmentation
and predicting purchase behavior,
enhancing targeted marketing
strategies.
Benefits and Limitations

One of the key benefits of logistic


regression is its ability to provide clear
insights into the relationship between
variables, making it interpretable for
stakeholders.

However, it assumes a linear


relationship between the log-odds of
the dependent variable and the
independent variables, which may not
always hold true.

Additionally, logistic regression may


not perform well on complex datasets
with non-linear relationships,
necessitating the use of more

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