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Regression Analysis

Regression

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9 views

Regression Analysis

Regression

Uploaded by

lordsmobile111110
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Regression:

Regression is a statistical technique used to understand the relationship between two (or more)
variables. It helps you predict the value of one variable based on the value(s) of another variable.

For example, you might use regression to predict sales based on advertising spending. If you
increase your advertising budget, how much will your sales likely increase?

Relevance of Regression:

Decision-Making: Regression helps you make data-driven decisions. For example, if you want to
know the impact of various factors (like price, marketing, or customer satisfaction) on sales,
regression helps quantify those relationships.

• Predict Future Trends: By understanding the relationship between variables, you can
predict future outcomes. For example, you can predict next quarter's revenue based on past
data.

• Business Strategy: Understanding these relationships can help shape business strategies,
whether it's optimizing pricing, determining how much to invest in marketing, or deciding
on the right mix of factors to improve performance.

Example: Imagine you're the CEO of a retail company. You have data on your advertising budget
and sales from the past year. Using regression, you can find out how much of an increase in sales
can be attributed to an increase in your advertising spend. This allows you to make more informed
decisions about budgeting for marketing.

Types of Regression:

1. Simple Linear Regression:

This looks at the relationship between two variables: one independent variable (X) and one
dependent variable (Y).

Example: You want to predict a company's revenue (Y) based on how much it spends on
marketing (X). The regression equation:
Coefficient of Determination (R²)

The coefficient of determination, commonly denoted as R², is a statistical measure used to assess
how well the regression model explains the variance in the dependent variable. It is the square of
the correlation coefficient (r) between the observed values and the predicted values, and it is used
to determine the proportion of the variance in the dependent variable that is predictable from the
independent variable(s).

Interpretation of R² Values

The value of R2 lies between 0 and 1 and gives a percentage that represents the proportion of
variance in the dependent variable explained by the independent variable(s).

Interpretation:

R² = 0: This indicates that the model does not explain any of the variance in the dependent variable.
The independent variables are not useful for predicting the dependent variable.

R² = 1: This means that the model explains 100% of the variance in the dependent variable. The
model perfectly fits the data, with no difference between the observed and predicted values.

0 < R² < 1: Any value between 0 and 1 represents the proportion of variance explained by the
model. For example:

▪ R² = 0.70 means that 70% of the variance in the dependent variable is


explained by the model, and the remaining 30% is unexplained or due to
other factors not captured by the model.

▪ R² = 0.45 means that 45% of the variance is explained by the model, and
55% is unexplained.

Questions:
Q1. Regression Analysis has been performed using MS Excel (shown below) to study the
relationship between the number of hours studied and exam grades obtained. Answer the following
questions on the basis of Regression Analysis performed:

(i) Formulate the straight-line equation that is best fit for data.

(ii) Find the exam grades, if number of hours studied is 5 hours.

(iii)Define coefficient of determination and interpret the values of R Square.

Q2 Observe the excel results of regression analysis shown in the figure below and answer the
following questions

(i) Find the equation of straight line that fits the data best.

(ii) Find the value of dependent variable for HH size = 4.5.

(iii) Define coefficient of determination and interpret the values of R Square.

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