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    5 Estimation

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    Linear regression models the relationship between a dependent variable (Y) and an independent variable (X) with a linear equation of the form Y = b0 + b1X, where b0 is the y-intercept and b1 is the slope of the line. The coefficient of determination (R-squared) measures how well the regression line approximates the real data points. The standard error of the line represents the standard deviation of residuals and indicates the precision of the model. For example, a simple linear regression can be performed to analyze the relationship between annual sales (Y) and store size (X) for a sample of produce stores.

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    5 Estimation

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    jbsimha3629
    48 views15 pages
    Linear regression models the relationship between a dependent variable (Y) and an independent variable (X) with a linear equation of the form Y = b0 + b1X, where b0 is the y-intercept and b1 is the slope of the line. The coefficient of determination (R-squared) measures how well the regression line approximates the real data points. The standard error of the line represents the standard deviation of residuals and indicates the precision of the model. For example, a simple linear regression can be performed to analyze the relationship between annual sales (Y) and store size (X) for a sample of produce stores.

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    5.Estimation

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    5.Estimation

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    Linear regression models the relationship between a dependent variable (Y) and an independent variable (X) with a linear equation of the form Y = b0 + b1X, where b0 is the y-intercept and b1 is the slope of the line. The coefficient of determination (R-squared) measures how well the regression line approximates the real data points. The standard error of the line represents the standard deviation of residuals and indicates the precision of the model. For example, a simple linear regression can be performed to analyze the relationship between annual sales (Y) and store size (X) for a sample of produce stores.

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    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    48 views15 pages

    5 Estimation

    Uploaded by

    jbsimha3629
    Linear regression models the relationship between a dependent variable (Y) and an independent variable (X) with a linear equation of the form Y = b0 + b1X, where b0 is the y-intercept and b1 is the slope of the line. The coefficient of determination (R-squared) measures how well the regression line approximates the real data points. The standard error of the line represents the standard deviation of residuals and indicates the precision of the model. For example, a simple linear regression can be performed to analyze the relationship between annual sales (Y) and store size (X) for a sample of produce stores.

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    Linear regression

    Linear relations

    • Yt = b0 + b1 Xt
    • Where Yt is the dependent variable being forecasted
    • Xt is the independent variable being used to explain Y. In
    Linear Trend Lines, Xt is assumed to be t.
    • b1 is the slope of the line, determined by Excel
    • b0 is the y intercept of the line, determined by Excel
    Coefficient of Determination: R-square

    • Proportion of variation in Y around its mean that is


    accounted for by the regression model
    • 0 <= R2 <= 1
    • Will always increase as add more independent
    variables into regression model. Use adjusted R2 to
    compare when more than one independent
    variable is used
    Standard Error of the line: Se

    • The standard deviation of estimation errors


    • The measure of amount of scatter around the
    regression line
    • Can be used as a rough rule of thumb for predicting
    level of accuracy.
    Simple Linear Regression: Example

    You want to examine Annual Store


    Sales Feet
    the linear dependency
    of the annual sales of ($1000)

    produce stores on their 1 1,726 3,681


    size in square footage. 2 1,542 3,395
    Sample data for seven 3 2,816 6,653
    stores were obtained. 4 5,555 9,543
    Find the equation of 5 1,292 3,318
    the straight line that 6 2,208 5,563
    fits the data best. 7 1,313 3,760
    Scatter Diagram: Example
    12000
    Annua l Sa le s ($000)

    10000

    8000

    6000

    4000

    2000

    0
    0 1000 2000 3000 4000 5000 6000

    S q u a re F e e t
    Equation for the Sample
    Regression Line: Example

    Yˆi  b0  b1 X i
     1636.415  1.487 X i
    Interpretation of Results: Example

    Sales = -900.52 + 0.6336 * Area

    The slope of 0.6336 means that for each increase of


    one unit in Area, we predict the average of Sales to
    increase by an estimated 0.6336 units.

    The model estimates that for each increase of one


    square foot in the size of the store, the expected
    annual sales are predicted to increase by $634.
    Regression
    • Consider the following dataset.
    salesData <- read.csv("
    G:\\Training\\NCT\\Sales.csv",header=TRUE)
    plot(salesData$sales,salesData$area)
    Regression
    • Fit a regression model to the data.
    Model1 = lm(Sales ~ Area, data = salesData)
    • Output:
    Regression
    • Maybe there is more…
    model1 = lm(Sales ~ Area, data = salesData)
    summary(model1)
    • Output:
    Regression
    • And more…
    par(mfrow=c(2,2))
    plot(model1)
    Regression
    • What all is there?
    names(model1)
    • Output
    Regression
    • What all is there?
    • names(summary(model1))
    • Output

    • And even more…


    Regression
    • Fit confidence intervals to line.
    predict.lm(cherry.lm,
    interval="confidence")

    • Prediction intervals to a new data set can also be


    generated.

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