REGRESSION ANALYSIS piEcT IVES ws etudying the material in this chapter, you should be able to : 0 nderstand the concepts of linear regression analysis. " oi regression coefficients and regression lines. the properties of regression coefficients. egression analysis to estimate or predict the values of a dependent ip existed between two variables. If such a relationship itical formula, we will then be able to use it for the to establish the “nature of relationship” ——— al relationship between the variables and thereby n, or forecasting. A mathematical equation that variable from known values of one or more other qi uation. The variable whose value is to be predicted is nt variable are called independent variables or analysis confined to the study of only two an independent variable, is called simple regression n the dependent variable and the independentee ae ee oe Example 2. In the estimation of regression equation of two variables X and Y, the following results were obtained : YX=900, YY =700, yx? =6360, yy? = 2860, YXY =3900, w= 19 Obtain two regression equations, [Dethi Univ. B.Com. (Hf) 2008) Solution. We have _ NYXY-(YX)(ZY) _ (10x3900)-(900« 700) Xe (EXI 10x 6360 -(900)?f Calculation for Regression Lines =i91 | DxY = 151 me (E221) __ 1x151=28x35 _ 151- 140 _ 11 _ 939 E 2(Sx) 7x140-(28)° =740-112 28 y xy -(> 7x151-28x35 _ 151-140 _ 11 SS See by = 7 j at 21-175 16 mee ion of Kon Yis: eS & = by (¥98 Business Stasi las Spe 20 eee ee eo ytkD es Er cols nDXV-(EX)EY) _ 4%490=(20)(88) _ 1960-1700 _ 260 MS eSx) 4x120-(20)" 480-400 ~ gg = 3.25 Regression Equation of Y on X is given by Y-¥ = by(X-X) or, ¥-21.25 = 3.25 (X-5) ie, Y-21.25 = 3.25X-16.25 > Y=5+3.25X = (l) Substituting X= 10 in (1), the estimated annual maintenance cost for a ten-year old car is : Y = 5+3.25x 10 = 37.5thundred or %3750. Example 5. A furniture retailer in a certain locality is interested in studying the relationship that exists between the number of building permits issued in that locality in the past years and the volume of sales in those years. The data for sales (Y, in thousand rupees) and the number of building permits issued (X, in hundreds) for the last 10 years are collected to give the following results : YXxX=200, yY=2200, PX¥=45800, yx? =4600, yy?=490400 Find : (i the level of sales expected in a year when 2000 building permits are to be issued, and (i) the change in sales expected for every increase of 100 building permits. [Dethi Univ. B.A. (Econ. Hons.) 2001] ited by Y and the number of egression equation of Yon _ 2200 _ eign 22 =(200)(2200) age in sales is: 99 sts gs JoN COEFFICIENTS ~ SOME FORMULAS gnt59 ¢ shall derive some more formulas for regression coefficients. : ecto? for Regression Coefficients in terms of Covariance and (me es ‘ ie he e regression coefficient of Y on X is given by Oy xy-2HEY) a +» (I) byx 2.9) px? aE efficient of X on Yis given by the -, co a xy- 22) (ZY) ole E -. 2) ta ray 2_\2t) Sie may also recall that the covariance between X and Yis given by rt geste ZxY_ (EXE) _ cov (X% = on n n e i f X- and Y-values are respectively given by or, the variances © z pt E oi) fx a aga Var (X) = a ie .. 5) .. (6) .. (7) ons of X- and9.10 Business Statistiog s)\2 a = DOR) ze-¥) By n Thus using Formulas J, we obtain y= COOK) (X-%)(¥-¥) and of = n x ox >(x-X) _ covixy) _ L(X-%)(¥-¥) and by = ene = E(v-¥) If we let x and y denote the deviations of X- and Y- values from their Tespective means, ie., x= X-X and y= Y-Y, then the above formulas for Tegression, Coefficients can be put in the following forms : Formulas 2: by, = ty and byy= ee = X-X andy=Y-¥ mx xy Il. Formulas for Regression Coefficients in terms of r, oz and o, _ Cov (X,¥) = We know that the coefficient of correlation ris given by r ofl) sel P} +1, the regression‘Two Rogression Lines Coinclde x 0 Correlation 4 perfect Positive io (b) Perfect Negative Correlation Fig. 9.3 if Xand Yare uncorrelated, the two regression equations reduce to a0, wen” . fand x= X, and hence they are perpendicular to each other (see Fig. 9.4). ¥ Two Regression Lines Perpendicular y=¥. d Cov (X, Y)=-1009.12 Business Stik i ‘ ients byy and by, of Yon x Example 7. Find the regression coefficients by, any Of Y and x, Tespectively, if standard deviations of Xand Yare 4and 3 Tespectively, ang coef y of correlation between X and Yis 0.8. t Solution. We are given the following : 0, = 4, o,= 3 and gue To find b,y and byy, we make use of the following formulas : oF: oe by = Gy and By = 12k Substituting the given values, we obtain 3 = 08x- — by = O.8x5 = 0.6 and by = 0.8x5 = 107, Example 8. The coefficient of correlation between ages of husbands and wives in 4 community was found to be +0.8, the average of the husbands’ age w, aa ‘aS 25 years an, d that of wives’ age was 22 years. Their standard deviations were 4 and 5 Tespectively Find with the help of regression equations : - () The expected age of the husband when wife’s age is 18 years, and (@) The expected age of the wife when husband’s age is 32 years. [Delhi Univ. B.Com. (A) 2019) Solution. Let ages of husbands and wives be denoted by Xand Yrespectively, Then We are given the following information : (P) 2009] fin ke). Then 0.89.13 ay production corresponding to the rainfall of 40 cms, we first ost il pa ation of Y on X which is given by jon wre ssio! ss : 2 ret (x -X) or ¥-500 = 0.8% 102 (x ~30) y= 16X+20 - () 40 in Ea. (1), we get Y= 660. in x= iy production corresponding to the rainfall of 40 cms is 660 kg. Pepe following data are given regarding expenditure on advertising and gi Ocular firm : * an past Adv. Expenditure (%) Sales (Y) * (®lakhs) (lakhs) 10 90 es deviation Bs ay Z ls coefficient 4 conto” fe the regression equation of Yon X. ae the advertisement expenditure required to attain a sales target of PL ae [C.A. Foundation, Nov. 1999] 12 eye are given the following information : gitioe “2-10, ¥ =90, 0% =3, oy= 12 and r=08 Sr ie Ei yy eee a8 Pee 08x; 3.2 and byy = OX = 08x75 = 0.2 7 line of YonX: y-¥ = by, (X -X) or, Y-90 =3.2(X-10) > Y= 3.2X+58 90) > X= 0.2Y-8 sales target of 7120 lakhs is 30 = 35 = 10 - 7 0.8 d Accounts9.14 Business Statin X = 30, ¥=35, o,=10, oy=7 and r=08 a i _ osx = 1.143 naa lies = ize 7 o8xt =0.56 Regression Equations Regression Equation of X on Yis: Regression Equation of ¥ on X ig , X-X = by(¥-¥) Y-Y = by(X-X) or, X-30= 1.143 (Y-35) or, Y-35= 0.56 (X-30) ner X-30= 1.143Y-40 Hey Y-35= 0.56X- 16.8 > X= 1143Y-10 ... (1) > Y= 056X+18.2 To find the expected marks in Advanced Accounts (X) ifthe marks in Business Statistiog (¥) are 40, we use regression line of X on Y. Thus substituting Y= 40 in (1), we get X = 1,143 x 40 - 10 = 35.72. Example 12. From the following data obtain the two regression equations and estimate the value of X when Y is 130 and estimate the value of Y when Xis 30. x > 39 13g 30 31 32 36 41 49 46 43 Ma : 132 134 129 136 TG lemeocemeloa 128 9155) [Delhi Univ. B.Com. (P) 2012) tions For Regression Linespol? Kone oon > Reyression Lquation of Yon % "= ee- 192) a ¥. se oe “ge”: : | ¥=182 = 0.23 (h~ 6 1" aan 0 ~— tia -02%% 7 3 is Fe un hs we é aaa : , we usE ‘ ‘ gtiting v7 190 10 Ba (1), we eet papa ae ‘i Yu 0001 NIO4 SUS NE@ BBG * 25.12 = 23.02 yalue of y when 4 = Y0, We vse regression oe Yon X Ti XL. Tras the i 7g in Ea (2), Wo Bt ye 0.23 * 30 4140.74 = -6.9 + 140.74 = 123 . 23.4 13. the following data give the aptitude test scores 2 - at er eo) at random * +t scores and productivity mdices gi? d 62 cored 4) ; 60 62 65 70 72 4 83 7 65 ex + 6 60 62 80 85 40 82 i = 2 the two regression 4 vations and estimate bacti An - ae goore 18 92- ate the productivity index of a worker For Regression Equations9.16 ieee: Regression Equations Regression Equation of Yon Xis: Regression Equation of X on Yts; Y-¥ = by (X-X) X-X = by (Y-¥) 3 or, Y-65= 1.168 (X- 65) or, X-65= 0.596 (y_ 65) ie, Y-65= 1.168X- 75.92 ie, X-65=0.596y- 38.74 > Y= 1.168X- 10.92 ... (1) > X= 0.596Y + 26.26, =) To estimate the productivity index of a worker whose test score is 92, we Use th regression equation of Y on X. Thus substituting X = 92 in (1), we get = Y = 1.168 x 92- 10.92 = 96.536 9.5 PROPERTIES OF REGRESSION COEFFICIENTS In this section we shall derive some important properties of regression Coefficients, Property 1. The coefficient of correlation and the two regression coefficients have the same signs. Proof. We know that the two regression coefficients are given by Cov (X,Y) Cov (X,Y) Page am and. by = 2 ox Oy ive, whereas Cov (X, ¥) may be positive or negative, ve fc at the regression coefficients by is now that the coefficient fficient of correlation mean between the between the ity, the other therefore,9.17 anal oe, 5 nol ee U x4 and i ye Feo} and k (> 0) are constants, then B h k Pena buy now wetake R= k= 1, i.e., we transform the variables Xand Yto Uand V and = by, = lat if Poe = xX-A and V-Y-B, ee buy and Dyy = by - Y=12 =0.8 and by = 0.5, find r,,and by, if U= oe and V= 4 [Dethi Univ. B.Com. (P) 2014 (SOL the correlation coefficient is independent of the change of origin and of a 14. litxy oti since sefore gale thet iene we know that if oreover X-A nRR aE Vis ihe 4 bit AB RE 0) and k (0) are constants, then me hy =25 Rew and by = F bw fficient of regression equation of X on Y is 2.5 and of Y on X is 0.8. Are the regression coefficients [Delhi Univ. B.Com. (P) 2012] and byy= 0.8 (2.4) (0.8) = 1.92 > 1, which is not possible = 39.5. Regression coefficient of Yon X = — be the pee eos of X when Y = 50? Dx aS and byy=-0.38 ‘50, we use regression line of X on Ygiven9.18 Business sy i X-X = b,(¥-¥) 3 X-532 = ~ 0.38 (Y-39,5) = X-53.2 = -0.38Y+15.01 => X= -0.38Y+68.9) Thus, substituting Y= 50 in Eq. (1), we get ~() = -0.38 x 50+ 68.21 =-19+68.21 = 49.91 To find the coefficient of correlation, we use 12 = byy . Byy= 1.5) (0.38) = 0.57 => r= 40.57 = +0.7549 As both the regression coefficients are negative, r = - 0.7549. Example 17. Given below is the information relating to a bivariate distribution. Regression equation of Yon X: Y= 20 + 0.4X, Mean of X= 30, Correlation Coetcie between X and Y= 0.8. Find regression equation of Xon Y. at [Delhi Univ. B.Com. (H) 2005 (SOL), 20; 0 Solution. Regression equation of Yon Xis: Y= 20 + 0.4X. Since the li of Y on X passes through the point (x, ¥) , therefore, Y = 20+04X Substituting X = 30, we get Y = 20+0.4x 30 =32 Also, byy = regression coefficient of Yon X= 0,4 ine of TegTession cra cy ~ by ~ 04 72 (r=08) & However, 0 = 1.6 (Y- 32) B, Com. (H) 1982] ite the marks in9.19 calculations for Regression Equations x" See y Wy © | 5 [3s 16 “A -32 u) 121 33 oO 3 0 9 0 aa re 1 4 2 ni a, 16 3 = «|-24 aa a 9 49 21 6 -8 36 64-48 2 =o 4 25 - 10 0 1 0 1 0 we ry? jl = 140 =398 |--93 235-22 and ¥ = 22 . 380 58 -93 Dy _ =93 byy™ Sy? Bietsont O° and by, = 5x2 ray oe mn Equation of Xon Y¥ is: Regression Equation of Y on Xis: e bey (¥-¥) Y-¥ = by(X-%) 39 = - 0.23 (Y- 38) or, Y-38=-0.66 (X- 32) S 30 23Y + 8.74 ie, Y-38=-0.66X+ 21.12 a Oe ==0.66X+59.12 ... (2) on, we have > r= +#/70.1518 = +0.3896 negative, r= — 0.3896 tistics () when me in Economics (X) are 59.12 = - 19.8 + 59.12 = 39.32. on coefficients, (ii) coefficient of correlation, (x-35)? = 162, ZY B31)? = 222, [Dethi Univ. B.Com. (H) 1992, 2018] pee OLE 31 N 109.20 Business Sten, y Atistiog or, Dx? = 162, Ly? = 222 and mexy = 92 where x and y are deviations of X and Y series from their respective means, ec eo2e Regression coefficient of Xon ¥: — Dyy = yy? = 999 = 0.414 Ly _ 92 Regression coefficient of Yon X: — byy = Te = Jeg ~ 0.568 (ii) Coefficient of correlation is given by r= +byy xbyy = V0.414x0.568 = 0.485. (iti) Regression Equations Regression Equation of Xon Yis: Regression Equation of ¥ on xi,. X-X = by(-¥) Y-¥ = by(X-X) i or, X-35 = 0.414 (Y-31) or, Y-31 = 0.568 (X- 35) te, X-35= 0.414Y- 12.83 ie, Y-31= 0.568X- 19.88 > X= 0.414Y +2217... (1) | > Y= 0.568X + 11.12 2) Example 20. A departmental store gives in-service training to its salesman which ig followed by a test. The management is considering whether it should terminate the service of any salesman who does not do well in the test. The following data gives the test scores and sales by nine salesmen during a certain period : Test scores E 14 19 24 PAL 26 22 15 20 19 Sales (‘00 Meesit) 36 948) 37 50 | 45% 33. %41) a9 Calculate the coefficient of correlation between the test scores and the sales. Does it indicate that the ination of services of low test scores is justified? If the firm Y the minimum test score that will most probable sales volume of a om. (H) 1998, 2003, 2019]° 3 Demo “ sy fe a = 0.558 and yn = 58 = 193 - 1.608 by ~ se of correlation, we use r? = By. by pe res 608 = 0:897264 => r= + 0.897264 = 40.947 aM 2 0.558 jon coefficients are positive, r= + 0.947. SI + sae, . ours at there is a high degree of positive correlation between test «cates thi : Py rindicate e salesman having low test scores will not be able to make tb ol us thi E i en sales: a termination of services of the salesman getting low test scores 3S ‘ Hence ni usb ation of X (Test scores) on Y (Sales) is given by ar esi w-¥) ie, X-20 =0.558(Y-40) > X =0.558Y-2.32 foeex * Fone is £3000, ie., when Y= 30, oo X= 0.558 « 30- 2.32 = 14.42. nimum test score of 14 will ensure continuation of service if the firm gence mv um sales volume of 3000. ts 4 the most probable sales volume of a salesman making a score of 28, we spestimet “cjon equation of Y (sales) on X (Test scores) : the Oe Y= by(X-X) ie, Y-40= 1.608 (X- 20) Y = 1.608X + 7.84 3 X = 28, Y= 1.608 x 28+ 7.84 = 52.86 ost probable sales volume of a salesman making a score of 28 is ¥5286. egression coefficients for the data given below : oes £12 oO we a wultiplied by 2 and then 6 be added to it. Similarly, subtract. 16 from it. What will be the new regression es of Xand Y? i of Regression Coefficients 2 XY 324 54 196 70 144 60 100 40 81 72 49 84 Dy? =894 > XY =380922 Business Stati ting Computation of Regression coefficients : nEXY-(FX)EY) _ 6x380-37x70 _ 2280-2590 _ -310 a ~ 1698-1369 ~ 329 = ~0.94 mT AyxX2-(Ex)?_6x283-(37)" nEXY-(EXNEY) _ 6x380-37%x70 _ 2280-2590 _ -310 +. = —— = =964-490) - aaa = = ny¥? (sy 6x894-(70) 5364-4900 464 0.67 We know that regression coefficients are independent of change of origin but not f scale. In fact, if the variables X and Y are replaced by the variables U= aX + b ang V= c¥+ d, where a, b, cand dare constants, then c a ees als and by, = oom Using this fact, the regression coefficients between the new series of X and Yard given by Babe = 3x(0.94) =-141 and Bx bey a 2x(-067) = -0.45. Example 22. Find (ij the two regression coefficients, (i) the regression lines, and (i the coefficients of correlation for the following data : Price (%) E78 89 qe09 59 79 68 61 125 137 156 112 107 136 123 108 Since the regression coefficients are independent of change of origin,9.23 isis ca 1512 _ 28 = => = 1217 3 8 , : 160-55 ~ 1242 ~ 28 esses 02) CS OU 808) a nyv" - (DV) 8(3468) - (108)? Boome 2a ? 21058 EE Oromo 2 346 DY - 69+ - cor6 = 75 4° eon 108 a pee 112tig np 11d Ts Elbe 7* n ‘ es a regression of YonXis: ps? Bay by (¥-*) ie, Y-125.5 = 1.217 (X-75) ye 1.217% + 34.225 tir of 72 .ssion of X on Vis: pe B® uj = eke byy (¥-¥) x-75 = 0.752 (¥~ 125.5) ies x = 0.752Y- 19.376 correlation, we use 1? = byy. byx .752 = 0.915 + 0.956, bare. use 7, byy and Dyy all have the same signs. 1 graded seven debators and independently ne coefficient of [Delhi Univ. B.Com. (H) 1993] be denoted by X and marks awarded by awarded by Judge B can be9,24 Business Satis, Calculation for Regression Equation of Yon x x Y |_U =x-35 V=Y-32 ue 40 32 5 0 25 34 39 -1 a 1 49 28 26 ea -6 49 26 30 30 -5 -2 25 44 38 9 6 81 6 38 34 3 2 9 31 28 -4 -4 16 16 dU Dav, yu? WG =0 =3 = 206 =145 gers ROM etso pas 35,3 _ oe = sot, = 35) 1¥ S24 32+ = 3243 Regression Coefficient of Y on X is : p< REW-(ZUN(EV) _ 7x121-0x3 nEU?-(SUy? DOGS OmmmLoSt Regression Equation of Y on X is: Y-¥ = by(X-%) ie, ¥-32.43 = 0.587 (x-35) or Y-32.43 = 0.587X-20.54 = Y=0.587X+11.89 * When X = 36, ¥=0.587 x 36+1 1.89 = 33 (app.) Thus if Judge B w a debator. i) the coefficient 017, 2021]9.05 anal i eo = 58452 = 5846.57 = 64,57 n 4 : g 2 es! : 5842 = 58 + 1,29 = 59,99 i. n y nquation of YonXis: Regression Equation of XonYis: ior x K 7) gia bx(X-*) eager aa) yoy = 0.37 (X- 64.57) or, X~ 64,57 = 2.20 (Y- 59.29) 1-892) * 0 y7X- 23.891 ie, X-64.57 = 2.20Y- 130.44 7-99" 9 a7X + 35.999 > X= 2.20Y- 65.87 ie adi Correlation is given by a fen 4 = \bxyxbvx = V2.20x0.37 = JOBI4 = 0.902, gs. You are given the following information regarding a distribution : onl” w=5, X=10, ¥ =20, y(x-4)? = 100, y-10)" = 160, >d(X -4)(¥ -10) = 80. ¢ regression coefficients and hence the coefficient of correlation. e tw pitt! [Delhi Univ. B.Com. (H) 2002] twe let U= X-4and V= Y— 10, then we are given : gution yU? = 100, yv? =160, yuv =80 yu = y(X-4) = DX-4N = WX-4N = 5x 10-4x5 = 30 ei yy = y(¥-10) = DY-10N = NY-10N =5x20-10x5 = 51 Fe the regressiol fficients are independent of change of origin, therefore, _ 5x80-30x50 bye ~ 5x100-(30)? je dl 4 aii Bee 80 3050 : 5x 160 -(50) ee 21 > ey ese n data are inconsistent. ation between two variables X and Y from 12 ions were made : Eee 205.8 XY = 3449.26 Buses ay On subsequent verification it was discovered that the pair (X= 1, Y=4) = tics wrongly, the correct values being (X= 10, Y= 14). After making necessary cree find: tion, () the two regression coefficients, (i) the two regression equations, and (it) the correlation coefficient. [Delfi Univ, B.Comsen mt Solution. We have Corrected YX = 30-11+10 = 29 Corrected pX2 = 670-11? + 10? = 649 Corrected YY = 5-4+14 =15 Corrected py? = 285-47+ 14? = 465 Corrected PXY = 344-11x4+10* 14= 440 > Corrected )' X Corrected X = cme iy 2 ae e ka Corrected ¥ = Sonecied ny 2 2105 (i) Regression coefficient of X on Y: _ MYXY-(DX)(DY) _ 12x440-29%15 _ 5280-435 _ 4845 Sy)2 i ny? 12x465-(15)? | 9580-225 ~ 5355 ~ 9905 Dxy9.27 nals eel coefficients, jor .gs10) - 1 0B oefficient, and ne -ro1ation “apply g0 units and the supply when price = 70. Wye when § [Dethi Univ. B.Com. (H) 1996] a pst? pias e = Siete . eri a in gee 2. DX =nk i XK = 25*5=125 re pncoste) a = 25x 4=100 ae 2 eS = 125-8-5+10+3 os ec vf ae as = 100-10-8+12+6 = 100 C oo eh EX? = 980- BP- OP + (10P + (37 cosrect = 680-64-25 + 100+9 = 700 iS = 480 - (10)? - (8)? + (12)? + (6)? correc = 480- 100-64 + 144 + 36 = 496 xy = 508-8* 10-5x8+10x12+3x6 corrected 28 7 cog 80-40 + 120+ 18 = 526 Bi Corrected YX _ 125. eorectea X n = "25 8 a 5 Corrected YY _ 100 ws Corrected ¥ _ n mn25) a ation of. ‘Regression Coefficients : _ 25%526-125x100 _ 526-500 _ 26 a = og 7 271 ~95x496=(100)% 796-400 © 96 x526-125x100 _ 526-500 _ 26 _ gy 447 25x 700-(125)° 700-625 © 75 Regression Equation of Yon Xis: ¥-¥ = Py (X-%) Y-4 = 0.347 (X-5) Y-4 = 0.347X- 1.735 Y= 2.265 + 0.347X ... (2) ve substitute Y = 80 in Eq (1):9.28 Business Stasi Example 28. For 100 students of a class, the regression equation of Marks ; Statistics (X) on the marks in Economics ™ is 3Y-5X fe 180 = 0. The mean mary: in Economics is 50 and variance of marks in Statistics is 4/9 of the Variance . marks in Economics. Find the mean marks in Statistics and the Coefficie; a nt correlation between marks in the two subjects. [Delhi Univ. B.Com, (4 2o0s, Solution. The regression line of X on Yis given by : 3Y-5X+ 180=9 : 5X = 3Y +180 fl Since the lines of regression always pass through the point (% ¥), 5X = 3Y +180 =3 x 50+ 180 = 330 = i 2 = ag Thus the mean marks in Statistics is 66. f ayo 4 Further, we are given: o% = Daan = = Oy " 3 Solving Eq, (1) for Xin terms of Y, we obtain: X = SY +36 3 = Regression coefficient of Xon Yis: byy = 5 i ees 2.3 eos Ue, ee as eT anc => FF = 0.9 Thus the coefficient of correlation between X and Yis 0.9. Determining the line of regression of Y on X and that of X on Y out of the given two regress I Sometimes, it is9.29 yn yin terms of X, we obtain (er ao -}x 2 Cy mbna -} . og Bd (2) for Xin terms of Y, we obtain - a 2) = 3 <1, which is true by Ox 2 t — that is, the equation X + 2Y = 5 is the line of 3 3y +4 = Dyy = 5 mption is correc We ee following two regression lines, find the line of regression of X out 0 Pare ec 5X+4Y=9 ee Xt pation of two al lines are : tio Tae ox+ 3Y - as 5xX+4Y =9 a jy assume that Eq, (1) is the line of regression of Xon Yand consequently wi js the line of regression of Yon X. fe () for Xin terms ie Y, we obtain sing 39.30 Business Sn Solving these equation simultaneously for X and ¥, we obtain ¥ = Pe, Hence the student did not obtain the correct mean values. Next, let ys ee assume that Eq, (1) is the line of regression of Yon X and consequently Eq. (2) oy line of regression of X on Y. Rewriting Eq. (1), we get Sthe 3 Bee ee og 9 ggt FP mm bye “3 Similarly, rewriting Eq. (2), we get --ty43) 1 OX=-Yrdl or A=—-Yt—) > “b= a eee (-3)(-4) = + <1, which is true, Hence our assumption is correct. The value of the correlation coefficient is ; r= fh =-3 =-05, the negative sign is being taken, because r, byy and byy all have the same signs, Example 32. Two random variables have the regression equations : 3X+2Y-26=0 and 6X+Y-31=0 Find: () The mean values of X and Y, (@ Coefficient of correlation between X and Y, and (ii) The standard deviation of Y, if variance of X = 25. y. B.Com. (H) 2013, 2019 (Modified) (l) 2) oint (%, ¥), thereforemption je correct. However, u ® 1 Ly SG aR balteenoe jn being rejected, because r, by, and b,, all have the same signs. ire standard deviation of Y, if o% = 25 roscoe 5 = oxn WWarX = 25 =5 = ret.-3 5 -1,%.-3 , oy= 15 r2™ byx- two regression lines are 3Y + 9X = 46 and 3X+ 12Y= 19, determine se is the regression line of Yon X and which one is that of Xon Y. wet one ese correlation coefficient and ratio of the variance of X and Y. fied the me [Dethi Univ. B.Com. (H] 2006 (SOL) equations of two regression lines are : wn 9x = 46 (1) and 3X+12¥=19 (2) assume that Ea, (1) is the line of regression of Xon Yand consequently yetus the line of regression of Yon XG in. 8 (1) for Xin terms of Y, we obtain gavine Ba foe oe Paetagt to => by =-3 ving Eq. (2) for Yin terms of X, we obtain similarly, 8° sa. 4x48 iis, < 1, which is true 3Y + 9X = 46 is the line of s the line of regression of Yon9.32 Business Statis ties 1 Syeqen 46 om UG wl Thus, the means of X and Y-series are: X = 5, ¥ = Calculation of ratio of the variance of X and Y To find the ratio of the variance of X and Y, we make use of the following formula: cra Sa Oxy Dire Cuan CT © aT ok | bey _ U9 _ 12 Ce Si pl AL Ng) Example 34. Given X= 4Y+5 and Y= kX+ 4 are the lines pane eer of Xon Yang Yon X respectively. If k is positive, prove that it cannot exceed r Ifk= 76> find the means of two variables and the coefficient of correlation between them. [Dethi Univ. B.Com. (H) 2006, => On PES, Solution. The regression line of X on Yis given by Xen Ayer See by at The regression line of Y on X is given by Y=kX+4 > Dy=k_ 12 = by * By, = 4k — l(always) => 4k<1 => Kk Al © A IA Ifk = 1 gression line of Yon Xis : J > e the same signs. 28 and Y =5.75.F nalysis P ey pind d the line of regression of Y on X from the following data : = (C 2 a 6 8 10 12 14 i rad x Ss 3 2 Bo ee 12 Y Priest error of estimate of Yon X. fe an TABLE 9.1. Calculation for Regression Line A on ¥, XY a Y-Yo (V-YP 16 8 2.8216 1.1784 1.3886 9 12 4.2144 -1.2144 1.4748 25 30 5.6072 = 0.6072 0.3687 100 80 7.0000 3.0000 9.0000 16 40 8.3928 = 4.3928, 19,2967 121 132 9.7856 1.2144 1.4748 144 168 11.1784 0.8216 0.6750 pe |e |) ee | Be | Be) Ze -¥e)" 2560] =431 | =470 =49 =0 = 33.6786 et LY and TYo are equal. This must always be true if ¥(¥-Ye) = pote e xq One ae Dd 49 a ae Gil eS oe ee " ae eal (a0 6 x 49 ame ee (Da 7560 -(56)” 3090-2744 _ 546 _ pOBEISCME ISS ace Yon Xis given by — X) or, Y-7=0.6964 (X-8) 88 + 0.6964X con (@)) or of estimate (of Yon X), we must compute a value for tituting each X value into the regression equation (1). rence between these Y, values and the corresponding shown in Table 9.1. = 74.8112 = 2.1934 [33.6786 _ a7 tlating Syx? an ae be calculated using the following formula:9,36 Business g,,. 'Stiog 431- 1.4288) (49) -0.6964(470) oe = z (a= 1.4288, b= 0.6964) _ /431-70.0112-327.308 _ [32.6808 _ gare —— ere s i = 2.1935 (the difference in this case is due to rounding) Example 36. In fitting of a regression of Yon x toa bivariate distribution Consisti of 9 observations, the explained and unexplained wanations were Computed as ; 4 and 36 Tespectively. Find (i) the coefficient of determination, and (ii) the standarg error of estimate of Yon X. [Delhi Univ. B.Com. (H) 2007 (Sox Solution. We are given : n= 9, explained variation = 24, and unexplained variation = 36 +. Total variation =Explained variation + Unexplained variation = 24 + 36 = 69 () Coefficient of determination (r?) is given by oa Explained vari Total variation (i Standard error of estimate of Y on X is given by [Unexplained Variation _ [36 Et eae eee = = ff = 2. Example 37, Given that: n = 10, Total variation = Y(Y-Y)” = 38.92 and Unexplained Variation = L(Y. ned variation = 19.22 1.40.9.37 is ns the fe jollowing data A, aire” Oo ie rae tor 19 e 6 ; 9 SI 9 6 8 oneal 8 Gil “a ssion coefficient of Y on X, (ii) the total variation in Y, (ii) the a (i the standard error of estimate of Yon X, eo Foon, 2 ‘rit Computation of Regression Coefficient a x y? xy vA Yio (Vanya? WAT F 4.29 + 0.53x| ener) 1 [= TAT 1.53 | 2.3409 a4 9 4 6 6.41 -0.41 | 0.1681 . 0 1 0 8.00 1.00 | 1.0000 = 9 9 9 6.41 -141 | 1.9881 F 1 1 1 8.53 0.47 | 0.2209 = 16 4 8 5.88 0.12 | 0.0144 0 9 0 0 9.59 -1.59 | 2.5281 it i 1 1 TAT -0.47 | 0.2209 3 Hy 9 3 8.53 2.47 | 6.1009 0 0 0 0 8.00 0.00 | 0.0000 Z 4 1 -2 9.06 -2.06 | 4.2436 3 | 2 9 15 10.65 0.35 | 0.1225 doy Urry) Ley =40 = = 18.9484 er) i =) Dy? = 40 ation. To compute explained variation, we first 18.9484 on ~ Unexplained variation 484 = 21.05169.38 Business Statistg, (iv) Standard error of estimate of ¥ on X: 2 cee Declare i8.oee4 = 1.5790 = 1.2566, 7” Example 39, For 10 observations on price (X) and supply (¥) the following data were obtained (in appropriate units) : YX =130, YY =220, yx? = 2288, yy? =5506, YXY = 3467 Obtain the line of regression of Y on X and estimate the supply when the price is 1 units, and find out the standard error of estimate. [Delhi Univ. B.Com. (H) 2029) Solution. Regression coefficient of Yon Xis: ny XY -(YX)(ZY) _ 10x3467-130x220 er Teo: 102288 -(130)” 34670-28600 _ 6070 _ 1.015 22880-16900 5980 i i 10 Regression equation of Y on X is: Y-¥ = by(X-X) or, Y- 22 = 1.015 (X- 13) > Y = 8,805 + 1.015X = (1) When price is 16 units, the estimated supply is obtained by substituting X= 16 in (1); Yjg = 8.805 + 1.015 (16) = 25.045 The standard error of estimate (of Yon X) is given by 2 BLY 220 4 =18 and ¥=“-= 4p = 22 by 9 salesmen of a ce: H i 40 20 50 60 the salesmen. cted weekly n. (H) 2013]9.39 ekly sales (in ’000%) and Y denote the intelligence 4 @ ve giations for Regression Equation for X on ¥ ic’ fe er re 9 0 0 0 1 0 4 0 0 1 1 -1 0 9 0 9 0 0 1 9 3 1 1 1 0 9 0 u? yr rw = 25 = 30 =3 (Wack = 50+3x10 = 5044.4 = 54.4 n 10, nEUv -(2U) (EY)9.40 Business Stats X= 0.248 x 65 + 36.51 = 16.12+36.51 = 52.63(000%) or %52639 (it) The standard error of sales (X) on intelligence test scores (¥) is given by Sue along 2 et where o,= ae (ae muy wn [2-(3) w0- FP-1x10= $19. Ree G 7 = 0.248 x 0.438 = 0.1086 3 ne ye ox Vi-r? = 13.33 (1-0-1086 = 13.33 « 0.944 = 19 55 Example 41, Given the following data : a eee MME ye 2 HO sahGieiss | ze g ACROSS 9 OG 18 5} ll | 7H |g Obtain the two regression equations and calculate Standard Error of Estimate ( [Delhi Univ. B.Com. (x) 2007, Solution. Calculation for Regression Equations x y x ¥ x-X y-¥ -2 0 4 a4 -2 16 0 15 15 > “ q é SNanrr)Hen NYS awerCUM®aw orwwcnHoono COWHXBSDSH OCOD AvCr#x®D9.41 : ni Regression Equations i ono yf ¥ on Kis: Regression Equation ofXonYis: ra y 2 = re Fahl as E mT “en or, X-7 = 1.047 (y-8) cae Pe ix os te, X-7= 1.047Y-8.376 4 8" F796 +0.672X ... (1) = X= ~ 1.376 + 1.047Y B3. er of otimate (8B): 2 Bi en a -¥y zu" 86 Fy = ee =e = 2.677 we Ae BP i = 0.672 x ‘L047 = 0.70 Fe SE - 8yVi-1? = 2.677 VI-0.70 = 2.677 x 0.548 = 1.467. Preiss the standard error of the estimate of Y from the regression of set aw : yore =90, Lxy = 120, yx? =200, where x= X-X, y=y-7 ip 10, yy [Dethi Univ. B.A. (Econ. Hons.) 1991] The standard error of the estimate of Y from the regression of Y on X is e 8 Rg W een) leila’ 120 ar < To x90 ~ 18000 <4 (GH) eal 2))9.42 Business Satgig, We solve equations (1) and (2) simultaneously for X and Y . Multiplying both gj des Eq. (1) by 5, we get 40X-S07+330 =0 or 40X-S0¥ = ~330 3) Subtracting (3) from (2), we get 8) OYE rea mme e Substituting 7 = 17 in (1), we get 8X-170+66=0 or 8X=104 > X=13 Hence the means of Xand Yare: X = 13, Y = 17 Calculation for coefficient of determination : The regression line of Y on X is: 33 | 8X-10¥#66=0 or Y=2x+= 5 5 4 a byy = regression coefficient of Yon X= > The regression line of X on Yis : 9 107 40X-18Y = 214 or 5 20 * 20 > byy = regression coefficient of Xon Y= 3 *. Coefficient of de ee ee - <. Coefficient letermination =P = byy x byy = 599 = 95 = debxs = 4 16 Fi B12) acorrelation analysis as follows: i) standard error 022(Modified)] ea) wa (2) and Eq (2) is9.43 iS f Y, we get i. xin terms 2 | Boye ee UDG TE Eis al 2 terms of X, we get ? a: 0) for Yin t ‘i e Sinisa a peers eo UK a ? ayia) — 2 : pe by Px = ("2)\-3) = | $1 which is true pe amption is correct i 8° xe 4 em ox ae pT ee lb mae f a oe ox ie Gs edi Ap aeae OY hea 4 eee pence of oY 3 3 ye Bs amaof determination of Xand Y See eons ard error of estimate of XonY: ‘sa 2 oxli-r? = 2fi-3 = axd 21 Sxy orof estimate of Yon X: ard €? wi s,, = oyvi- poet 1541-3 = 1.154 x 4 = 0.577. YX ETWEEN CORRELATION AND REGRESSION eans the relationship between two or more variables which at fac movements in one tend to be eccompanied by the to the AVSREE value and is a Beteeratical measure tionship between the two variables. determine the “degree of relationship” between id, regression analysis attempts to establish the between variables, i.e., to study the functional bles and thereby provide a mechanism for se and effect relationship between the variables 1 analysis clearly indicates the cause and effect aL ous) correlation between two variables whichF . 9.44 Business Statstcg 5. Correlation analysis is confined only to the study of linear Telationship betwee the variables and therefore, has limited applications. Regression analysis he ‘nN much wider applications as it studies linear as well as non-linear relationshjs between the variables. > 6. Correlation coefficient r(X, ¥) (or simply r) between two variables is symmetrig ie. r(X, Y)=r(Y, X). Regression coefficients are not symmetric in X ang Vie’ Dyy # Dyy- a 7. Correlation coefficient is independent of change of origin and scale. Regression coefficients are independent of only change of origin but not of scale. LIST OF FORMULAE 1. Regression Coefficients : | by = Regression coefficient of Yon X nyxY-(EX)(Z¥) _ pay 24D mEX EA ye (LX) ae where x =X-X y=Y-7 by = EEE pax v-¥-B nv? (uyy | | regression analysis os 3 9 standard Error of Estimate : Standard Error of the estimate of Yon x: 2 - sax (ato¥ey | [SyPovoEAY . gufice > caer n Standard Error of the estimate of X on Y; rae tas r er Sa erT mf 5 sae (RRA. ERI. oor . n EXERCISE 9.1. What do you mean by regression analysis? Distinguish between correlation and regression. [Dethi Univ. B.Com, (H) 2019] How does ‘correlation’ differ from 4 ‘regression’? State the utility of zegression in the field of economic analysis, [Dethi Univ, B.Com. (H) 2006, 2011, 2013, 2022] State the properties of regression coefficients, [Delhi Univ. B.Com. (H) 2002, 2010, 2018} Point out briefly the role of regression analysis in business decision making, Also give two important properties of regression coefficients, [Delhi Univ. B.Com. (H) 2012] What do you mean by regression? Why are there two regression lines in a bivariate series? Can there be one regression line? [Delhi Univ. B.Com. (P) 2012] Explain the concept of standard error of estimate. What is the significance of standard error of estimate for the equations Yon X and Xon Y? How will you find standard error of estimate for the regression equations of Yon X and Xon Y? « [Dethi Univ. B.Com. (A) 2006} By using the following data, find out the two lines of regression and from them compute the Karl Pearson’s poe of oration 1. B.Com. (H) 1984] ee 4992 and N= 129.46 Business Statist; 10. Using the following data, obtain the two regression equations : ee 16 21 6 23. 28 24 ih 22 2 Me og eecg a tcoe ayencz 8470 (co 43 41 (CA. PEE, Nov. 2009) 11. You are given the following data relating to purchases (X) and sales (Y): Purchases (3) : 62 72 98 76 81 56 76 92 88 49 Sales (9) : 112 124 131 117 132 96 120 136 97 85 Obtain the two regression equations and estimate the likely sales when the purchases equal 100. 12. From the following data between the ages of husbands and wives, calculate the two regression equations and find the husband’s age when wife’s age is 20 and wife’s age when husband’s age is 30. Wife’sage(X) : 18 20 22 23 27 28 30 Husband’sage(Y¥): 23 25 27 30 32 31 35, 13. Find the means of X and Y variables and the coefficient of correlation between them from the following two regression equations: 2Y- X- 50=0 and 3Y-2X-10=0 [Dethi Univ. B.Com. (H) 1983, B.Com. (P) 2009] The lines of regression of a bivariate distribution are as follows: 7 5X-145=-10Y and 14Y-208 = -8X It is given that the variance of X= 4. You are required to find out the mean values of X and Yand the standard deviation of Y. Also find out coefficient of correlation between X CHASE [Dethi Univ. B.Com. (#) 2001] Given: 14, Mean 4 Standard deviationee pegression Analysts oe (i) What should be the advertisement expenditure if the firm proposes @ sales | target of 69 crores of rupees? [Detht Untv. B.Com. (H) 1985) | 18, ‘The following resulto were obtained frum the analysis of data on two variables Xand % K-20, P= 15, a =4, o*3, £207 Oblain wo regression equations and the likely value of Ywhen X= 24. Also calculate the standard error of estimate of Yon %, [Detht Univ. B.Com. (H) 2014) 19, The following results were obtained from the analysis of data on two variables Hand ©: | yxy =980, F=5, 7-6, Ex =50, yy =60, varin-4, Vari % . N= 10. Find (i) the two regression coefficients, (i) the coefficient of correlation, and (ii) the standard error of the estimate of Yon X [Detht Univ. B.A. (Econ. Hons) 2007} go. Younre given the following information about advertising expenditure (Z) and sales (1) Advertising Expenditure (A) Sales () fin ® crores) fin @ crores) Mean 30 90 standard deviation 4 12 Coefficient of correlation r= 08. () Estimate the two linear regression equations of Yon Xand Xon Y. (i) What should be the advertising budget if the company wants to attain sales target of 2 120 crores? (ii) What is the standard error of the estimate in the regression of Yon X ; [Delhi Univ. B.A. (Econ. Hons) 2006) 21. For a given set of bivariate data, the following results were obtained : 60,000, 77 = 10,40,000, (H 2022)Business Statistiog 9.48 23. Comment whether the following statements are True or False (i) If one of the regression coefficients is greater than unity, the other must also be greater than unity. (i) A relationship such as r= 1- (ii In regression analysis, the oy Saeed coefficients are 2.8 and — 0.3, (iv) The correlation coefficient between X and Yis 0.90 and the regression coefficient 360 not possible. cies (v) If the two coefficients of regression are negative, then their correlation coefficient is positive. (vd For a bivariate distribution, byy = 2.04, by, =— 3.2, r= 0.9. (vi) Regression analysis reveals average relationship between two variables. (vit) The regression coefficient of Yon X is denoted by the symbol b,,. (&) Regression coefficients are independent of change of origin and scale. (2) If by =- 0.9 and b,, =~ 0.9,then r= 0.9. (c) In regression analysis, the two regression coefficients are 1.5 and 1.2. ’) If two regression coefficients are 0.8 and 1.2, what would be the value of coefficient of correlation? [Dethi Univ. B.Com. (P) 20131 (i With by, = 0.5 r= 0.8 and variance of Y= 16, find the standard deviation of x, (ii) From the following regression equations, find X and Y : 2Y-X-50=0 and 3Y-2X-10=0 d3 ag and coefficient of 24, correlationRegression. Analysis 20. 21. 22. 23. 24. 9.49 @Y=32X-6(YonX; x=o2y4 12 (Xon Y) (i = 36 crores (i) S.B.y,= 7.2 () Y= 116 when X= 60(i)X = 42 when Y= 80 (i r=0.8 (i) SB. (Yon x)= 12 (j r=-0.866 (#) X=-26 when Y= 20 @F (i) T (WF (vu) F (ig F (4 F (9 r= 0.9797 (i X = 130, 7