Regression Equation

Definition: The Regression Equation is the algebraic expression of the regression lines. It is

used to predict the values of the dependent variable from the given values of independent
variables.

f we take two regression lines, say Y on X and X on Y, then there will be two
regression equations:

 Regression Equation of Y on X: This is used to describe the

variations in the value Y from the given changes in the values of X. It can

be expressed as follows:
Where Ye is the dependent variable, X is the independent variable, and a &
b are the two unknown constants that determine the position of the line. 
The parameter “a” tells about the level of the fitted line, i.e. the distance of a
line above or below the origin and parameter “b” tells about the slope of the
line, i.e. the change in the value of Y for one unit of change in X.
The values of ‘a’ and ‘b’ can be obtained by a method of least squares. The
following algebraic equations can be solved simultaneously to obtain the

values of parameter ‘a’ and ‘b’.

 Regression Equation of X on Y: This is used to describe the

variations in Y from the given changes in the value of X. It can be
expressed as follows:








’.

Note: The line can be completely determined only if the  values of the

constant parameters ‘a’ and ‘b’ are obtained.

Uses of Regression Analysis in Business:

1. Predictive Analytics:
Predictive analytics i.e. forecasting future opportunities and risks is the most prominent
application of regression analysis in business. Demand analysis, for instance, predicts the
number of items which a consumer will probably purchase. However, demand is not the only
dependent variable when it comes to business. Regression analysis can go far beyond
forecasting impact on direct revenue. For example, we can forecast the number of shoppers who
will pass in front of a particular billboard and use that data to estimate the maximum to bid for an
advertisement. Insurance companies heavily rely on regression analysis to estimate the credit
standing of policyholders and a possible number of claims in a given time period. Data
Science understanding is key for predictive analytics.
2. Operation Efficiency:
Regression models can also be used to optimize business processes. A factory manager, for
example, can create a statistical model to understand the impact of oven temperature on the
shelf life of the cookies baked in those ovens. In a call center, we can analyze the relationship
between wait times of callers and number of complaints. Data-driven decision making eliminates
guesswork, hypothesis and corporate politics from decision making. This improves the business
performance by highlighting the areas that have the maximum impact on the operational
efficiency and revenues.
3. Supporting Decisions:
Businesses today are overloaded with data on finances, operations and customer purchases.
Increasingly, executives are now leaning on data analytics to make informed business decisions
thus eliminating the intuition and gut feel. Regression analysis can bring a scientific angle to the
management of any businesses. By reducing the tremendous amount of raw data into actionable
information, regression analysis leads the way to smarter and more accurate decisions. This
does not mean that regression analysis is an end to managers creative thinking. This technique
acts as a perfect tool to test a hypothesis before diving into execution.
4. Correcting Errors:
Regression is not only great for lending empirical support to management decisions but also for
identifying errors in judgment. For example, a retail store manager may believe that extending
shopping hours will greatly increase sales. Regression analysis, however, may indicate that the
increase in revenue might not be sufficient to support the rise in operating expenses due to
longer working hours (such as additional employee labor charges). Hence, regression analysis
can provide quantitative support for decisions and prevent mistakes due to manager’s intuitions.
5. New Insights:
Over time businesses have gathered a large volume of unorganized data that has the potential to
yield valuable insights. However, this data is useless without proper analysis. Regression
analysis techniques can find a relationship between different variables by uncovering patterns
that were previously unnoticed. For example, analysis of data from point of sales systems and
purchase accounts may highlight market patterns like increase in demand on certain days of the
week or at certain times of the year. You can maintain optimal stock and personnel before a
spike in demand arises by acknowledging these insights.

Regression Coefficient
Definition: The Regression Coefficient is the constant ‘b’ in the regression equation that
tells about the change in the value of dependent variable corresponding to the unit change in
the independent variable.

f there are two regression equations, then there will be two regression
coefficients:

 Regression Coefficient of X on Y: The regression coefficient of X on

Y is represented by the symbol bxy that measures the change in X for the
unit change in Y. Symbolically, it can be represented as:

The bxy can be obtained by
using the following formula when the deviations are taken from the actual
 means of X and Y: When the deviations are
obtained from the assumed mean, the following formula is used:

 Regression Coefficient of Y on X: The symbol byx is used that

measures the change in Y corresponding to the unit change in X.

Symbolically, it can be represented as:

In case, the deviations are taken from the actual means; the following

formula is used:
The b  can be  calculated by using the following formula when the deviations
yx

are taken from the assumed means:

The Regression Coefficient is also called as a slope coefficient because it

determines the slope of the line i.e. the change in the independent variable for
the unit change in the independent variable.

Properties of Regression Coefficient

Definition: The constant ‘b’ in the regression equation (Ye = a + bX) is called as
the Regression Coefficient. It determines the slope of the line, i.e. the change in the value of
Y corresponding to the unit change in X and therefore, it is also called as a “Slope
Coefficient.”
 Properties of Regression Coefficient
 

1. The correlation coefficient is the geometric mean of two regression

coefficients. Symbolically, it can be expressed as:

2. The value of the coefficient of correlation cannot exceed unity i.e.
1. Therefore, if one of the regression coefficients is greater than unity, the
other must be less than unity.
3. The sign of both the regression coefficients will be same, i.e. they will
be either positive or negative. Thus, it is not possible that one regression
coefficient is negative while the other is positive.
4. The coefficient of correlation will have the same sign  as that of the
regression coefficients, such as if the regression coefficients have a positive
sign, then “r” will be positive and vice-versa.
5. The average value of the two regression coefficients will be greater than
the value of the correlation. Symbolically, it can be represented as

6. The regression coefficients are independent of the change of origin, but

not of the scale. By origin, we mean that there will be no effect on the
regression coefficients if any constant is subtracted from the value of X and Y.
By scale, we mean that if the value of X and Y is either multiplied or divided by
some constant, then the regression coefficients will also change.

Thus, all these properties should be kept in mind while solving for the
regression coefficients.