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Linear Regression

The document discusses Simple Linear Regression and Correlation, emphasizing its use in predicting the dependent variable based on independent variables and measuring relationships between them. It outlines the regression equation, scatter diagrams, assumptions for linear regression analysis, and the correlation coefficient to determine the nature of the relationship. An example is provided to illustrate the application of these concepts in analyzing production costs and sales data.

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EDISON LIMBAGA
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Download as PDF, TXT or read online on Scribd
0 views

Linear Regression

The document discusses Simple Linear Regression and Correlation, emphasizing its use in predicting the dependent variable based on independent variables and measuring relationships between them. It outlines the regression equation, scatter diagrams, assumptions for linear regression analysis, and the correlation coefficient to determine the nature of the relationship. An example is provided to illustrate the application of these concepts in analyzing production costs and sales data.

Uploaded by

EDISON LIMBAGA
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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SIMPLE LINEAR REGRESSION

AND CORRELATION
Engineering Data Analysis
Simple Linear Regression and Correlation
Regression Analysis
➢ Is used to predict the value of one variable (the dependent
variable Y) on the basis of other variables (the independent
variables X1, X2, …, Xk).

Two main purposes of Regression Analysis:

▪ To measure relationship between two or more variables and


▪ To predict or estimate values of dependent variable from known
values of independent variables.
Engineering Data Analysis
Simple Linear Regression and Correlation
Regression Equation
➢ is a mathematical equation that allows us to predict values of
one or more independent variables.
Scatter Diagram
is the most popular method for examining data points based on
two variables. The horizontal axis is the value of variable X and
the vertical axis is the value of variable Y.
Engineering Data Analysis
Simple Linear Regression and Correlation
Scatter Diagram

➢ is the most popular method for examining data points based


on two variables. The horizontal axis is the value of variable X
and the vertical axis is the value of variable Y.

The pattern of the points represents the relationship between the


variables.
▪ Linear relationship happens if the organization of points forms a
straight line.
▪ Non-linear relationship if there is a curved set of points.
▪ No relationship if there is a random pattern of points.
Engineering Data Analysis
Simple Linear Regression and Correlation
Assumptions on Linear Regression Analysis:
Consider X as the independent variable and Y as the dependent
variable. The following are the assumptions for regression analysis:
▪ The values of the independent variable X may be ‘fixed’, that is,
the researcher may select the values of X in advance or X could
be a random variable.
▪ The values of X are measured without error.
▪ The variances of the subpopulations of the dependent variable,
given different values of the independent variable, are equal.
▪ The subpopulation of the dependent variable Y, given different
values of the independent variable X is normally distributed.
▪ The mean of the subpopulations of Y all lie on the same straight
line. (Assumption of linearity)
Engineering Data Analysis
Simple Linear Regression and Correlation
Simple Linear Regression Model:

Independent variable
intercept
slope
Engineering Data Analysis
Simple Linear Regression and Correlation
Simple Linear Regression Model:

✓ The fitted line should be closer to the true regression line when
large amounts of data are available.
ෝ = 𝒂 + 𝒃𝒙.
Residual – is an error in the fit of the model 𝒚
Engineering Data Analysis
Simple Linear Regression and Correlation
Correlation Coefficient, r
➢ It determines whether x and y have linear
association/correlation
▪ 0 < r  1 – x and y are directly correlated

▪ -1  r < 0 – x and y are inversely correlated

▪ r = 0 – x and y are not correlated


Engineering Data Analysis
Simple Linear Regression and Correlation
Correlation coefficient, r
Engineering Data Analysis
Simple Linear Regression and Correlation
Test of linear association:
1. H0:  = 0
2. H1:   0
3.  = 0.05
4. Critical region: or

5. Computations:

6. Decision: If t calculated is within critical region, there is


linear correlation between x and y variable.
Engineering Data Analysis
Simple Linear Regression and Correlation
Example 1: A study was made by an electronic company
to determine the relation between weekly production
expenditures and sales. The following data were
recorded:
Engineering Data Analysis
Simple Linear Regression and Correlation
Example 1: a. Determine if there is a linear
Production Cost ($) Sales ($) correlation between production
60 770 cost and sales.
40 800 b. If there is linear correlation based
50 890 on your answer in letter a,
40 730 construct a simple linear
60 950 regression model and plot the
100 780 fitted line. Otherwise, disregard
80 980 this question and the next
40 940 question.
100 1120 c. Graph the line on the scatter plot.
80 1050 d. Estimate the weekly sales when
50 960 production cost is $90.
65 1020
e. Calculate e6.
Engineering Data Analysis
Simple Linear Regression and Correlation
Example 1:
c. Graph the line on the scatter plot.
Production Cost ($) Sales ($)
60 770
40 800
50 890
40 730
60 950
100 780
80 980
40 940
100 1120
80 1050
50 960
65 1020

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