Regression Method

• Regression refers to the statistical technique of modeling the relationship between variables.
• There are two potential objectives of regression analysis:
1. to understand how the world operates and
2. to make predictions.
• If there is a single explanatory variable, the analysis is called simple regression.
• If there are several explanatory variables, it is called multiple regression.
• In simple linear regression, we model the relationship between two variables.
• Regression can be linear (straight-line relationships) or nonlinear (curved relationships).
• One of the variables, denoted by Y, is called the dependent variable and the other, denoted by X, is called the independent
variable.
• The model we will use to depict the relationship between X and Y will be a straight-line relationship.
• A graphical sketch of the pairs (X, Y) is called a scatter plot.
Regression Model

• The population simple linear regression model:

Y= a + bX + e
• where
• ‘ Y ’ is the dependent variable, the variable we wish to
explain or predict
• ‘ X ’ is the independent variable, also called the
predictor variable
• ‘ e ’ is the error term, the only random component in
the model, and thus, the only source of randomness in
Y.
• ‘ b ’ is the Slope of line
• ‘ a ’ Y-Intercept of the line
Formulas
• Solve for the slope of the line

b
 XY  n X Y

 X  nX 2 2

• Solve for the y intercept a  Y  bX

• Equation for the trend line Y= a + bX + e
• Correlation coefficient measures the direction and strength of the linear relationship between
two variables. The closer the r value is to 1.0 the better the regression line fits the data points.

n  XY    X  Y 
r
 X    X   Y    Y 
2 2
2 2
n * n

 Y   a Y   b XY
2

• Standard Error (SE) =

n2