Linear Regression

SDSF, DAVV
MBA (Business Analytics)

Audience Submitted to:

Dr. Dipshikha Agarwal

Submitted by:

Manokamna Kochar
What is regression analysis?

Regression analysis is a technique for measuring the relationship between two

interval- or ratio-level variables. The regression framework is at the heart of
empirical social and political science research. Regression analysis acts as a
statistical surrogate for controlled experiments, and can be used to make
causal inferences.
What is regression analysis?

The basis for this is to find the relationship between the dependent and
independent variables. The value of dependent variable is of most importance
to researchers and depends on the value of other variables. Independent
variable is used to explain the variation in the dependent variable.

It can be classified into two types −

Simple regression − One independent variable

Multiple regression − Several independent variables

Simple Regression

Following are the steps to build up regression analysis

1.Specify the regression model
2.Obtain data on variables
3.Estimate the quantitative relationships
4.Test the statistical significance of the results
5.Usage of results in decision-making
Procedure
Method of Ordinary Least Squares OLS

1. Ordinary least square method is designed Formula for simple regression is −

to fit a line through a scatter of points is
such a way that
the sum of the squared deviations of the Y = a + bX + u
points from the line is minimized. It is a Y= dependent variable
statistical method. X= independent variable
Usually Software packages perform OLS a= intercept
estimation. b= slope
u= random factor
Properties of the Ordinary Least Squares
OLS

A1. The linear regression model is “linear in A5. Spherical errors: There is homoscedasticity and
parameters.” no auto-correlation

A2. There is a random sampling of observations. A6: Optional Assumption: Error terms should be
normally distributed.

A3. The conditional mean should be zero.

A4. There is no multi-collinearity (or perfect collinearity).

How to find regression equation ?

In the table below, the xi column shows scores

on the aptitude test. Similarly, the yi column
shows statistics grades. The last two columns
show deviations scores - the difference
between the student's score and the average
score on each test. The last two rows show
sums and mean scores that we will use to
conduct the regression analysis.
To conduct a regression analysis, we need to solve for b0
and b1. Computations are shown below.

First, we solve for the regression coefficient (b1): Once you have the regression equation, using it is a
b1 = Σ [ (xi - x)(yi - y) ] / Σ [ (xi - x)2] snap. Choose a value for the independent variable (x),
b1 = 470/730 perform the computation, and you have an estimated
b1 = 0.644 value (ŷ) for the dependent variable.
Once we know the value of the regression coefficient In our example, the independent variable is the student's
(b1), we can solve for the regression slope (b0): score on the aptitude test. The dependent variable is the
b0 = y - b1 * x student's statistics grade. If a student made an 80 on the
b0 = 77 - (0.644)(78) aptitude test, the estimated statistics grade (ŷ) would be:
b0 = 26.768 ŷ = b0 + b1x
Therefore, the regression equation is: ŷ = 26.768 + 0.644x = 26.768 + 0.644 * 80
ŷ = 26.768 + 0.644x . ŷ = 26.768 + 51.52 = 78.288
Thankyou