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DrSoomro - 2588 - 20292 - 1 - Lecture 9

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20 views29 pages

DrSoomro - 2588 - 20292 - 1 - Lecture 9

Uploaded by

maya ali
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Lecture No.

09

Regression Analysis And


Correlation
Key Learning Objectives

 To Understand Correlation.

 To Understand The Simple Regression Analysis.

 To Understand The Residual Analysis.


Correlation

 In business, the key to decision making often lies in the understanding


of the relationships between two or more variables.

 Statistically, correlation is a tool available to measure the


degree of relatedness of variables.

 Correlation can help a business researcher to determine the


relationship of the variables.

For example, whether the stocks of two airlines rise and fall in any
related manner.
Correlation

 Several measures of correlation are available, the selection of which


depends mostly on the level of data being analyzed.

 A widely used measure is sample coefficient of correlation, r. This


measure is applicable only if both the variables being analyzed
have at least an interval level of data.

 The Statistics r Is The Pearson Product-moment Correlation


Coefficient, Named After Karl Pearson (1857–1936), An English
Statistician Who Developed Several Coefficients Of Correlation
Along With Other Significant Statistical Concepts.

 The term r is a measure of the linear correlation of two variables.


Correlation

 It is a number that ranges from -1 to 0 to +1, representing the


strength of the relationship between the variables.

 An r value of +1 denotes a perfect positive relationship between two sets


of numbers.

 An r value of -1 denotes a perfect negative correlation, which indicates an


inverse relationship between two variables: as one variable gets larger,
the other gets smaller.

 An r value of 0 means no linear relationship is present between the two


variables.
Correlation

 When all the points on the scatter diagram tend to lie near a line which
looks like a straight line, the correlation is said to be linear.

 Correlation is said to be linear if the ratio of change is constant.

Example Of Linear Correlation:


When The Amount Of Output In A Factory Is Doubled By
Doubling The Number Of Workers.
Correlation

 When all the points on the scatter diagram tend to lie near a smooth
curve, the correlation is said to be non linear.

 Correlation is said to be non linear if the ratio of change is not


constant.

 Non-linear correlation is also known as curvilinear correlation.


Correlation
Correlation
Degrees of Correlation
Formula for Calculating Correlation

The following values must be obtained to compute r:

In correlation analysis, it does not matter which variable is designated


x and which is designated y.
Dependent Variable is denoted as Y.
independent Variable is denoted as X.
Correlation
Example:
Correlation

Class Exercise:
Simple Regression Analysis

 Regression analysis is the process of constructing A mathematical


model or function that can be used to predict or determine variable’s.

 The most elementary regression model is called simple


regression or bivariate regression involving two variables in
which one variable is predicted by another variable.

 In simple regression, the variable to be predicted is called the


dependent variable and is designated as y. The predictor is
called the independent variable, or explanatory variable, and is
designated as X.

 In simple regression analysis, only a straight-line relationship between


Simple Regression Analysis
 Nonlinear relationships and regression models with A scatter
more than one independent variable can be explored plot is a
by using multiple regression models. type
of plot or
 Usually, the first step in simple regression analysis is mathematic
to construct a scatter plot (or scatter diagram). al
Graphing the data in this way yields preliminary diagram us
information about the shape and spread of the data. ed to
display
values for
typically
two
variables
for a set of
data.
Simple Regression Analysis
Equation Of Regression Line

The sample intercept reflects the value of y when x = 0.


The intercept (often labeled the constant) is the expected mean
value of Y if X=0.
The slope of a line characterizes the direction of a line.
The slope of the line is the change in y over the change in x.
In mathematics, the slope of a line is a number that describes both
the direction and the steepness of the line.
Simple Regression Analysis
Equation Of Regression Line SSxy is sum of
the product of
the difference
between x
its means and
the difference
between y and
its mean.

SSxx is the
sum of the
SS = Sum of squares of the
Squares difference
between each
x and
the mean x
value.
Simple Regression Analysis
Equation Of Regression Line
Simple Regression Analysis

Example:
Simple Regression Analysis

Example:
Simple Regression Analysis

Example:
Simple Regression Analysis
Class Exercise:
Simple Regression Analysis

Class Exercise:
Simple Regression Analysis
Class Exercise:
Simple Regression Analysis
Class Exercise:
Simple Regression Analysis
Class Exercise:
Simple Regression Analysis

Residual Analysis

 Residual analysis is used to assess the appropriateness of a


linear regression model by defining residuals and examining
the residual plot graphs.

 A residual is the vertical distance between a data point and


the regression line. Each data point has one residual. They are positive
if they are above the regression line and negative if they are below
the regression line. If the regression line actually passes through the
point, the residual at that point is zero.
Simple Regression Analysis
Residual Analysis
Simple Regression Analysis
Residual Analysis Example

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