Simple Linear Regression

and Correlation Analysis

Dr. L Pazvakawambwa
lpazvakawambwa@unam.na
• In many business decisions it is necessary to predict the unknown values of a
numeric variable using other numeric variables that are related to it and for which
values are known.
• Regression analysis is a statistical technique that quantifies the relationship
between a single response variable and one or more predictor variables.
• This statistical model is used for prediction purposes.
• Correlation analysis identifies the strength of the relationships and determines
which variables are useful in predicting the response variable.
Objectives
After studying this topic, you should be able to:
• construct a simple linear regression model
• use the regression line for prediction purposes
• calculate and interpret the correlation coefficient
• calculate and interpret the coefficient of determination
• conduct a hypothesis test on the regression model to test for significance.
Many numeric measures are related (either strongly or loosely) to one another.
For example:
• advertising expenditure is assumed to influence sales volumes
• a company’s share price is likely to be influenced by its return on investment
• the number of hours of operator training is believed to impact positively on
productivity
• the operating speed of a bottling machine affects the reject rate of under-filled
bottles.
Regression analysis and correlation analysis are two statistical methods that aim
to quantify the relationship between such variables and measure the strength of this
relationship.
Exercises page 315 # 8-13