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Chapter 7: Regression

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Meaning
Regression is the measure of average relationship between two or more variables in terms of the original units of the data. Regression analysis is a statistical tool to study the nature and extent of functional relationship between two or more variables.

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Steps
If Correlation is established among given variables . Then find out the average relationship between the two . To estimate the unknown values of dependent variables from the known values of independent variables.

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Regression Equation:Equation:A mathematical Equation that allow us to predict the value of one variable from known values of one or more other variables.
(explained variables, response or outcome variable (y))-The variables whose value is predicted on the basis of another one.

Dependent

Variables-

Independent Variables- (explanatory variables,

predictor or input variable (x))-The variables which are used to predict the value of a dependent variable.

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Example:When sales are predicted on the basis of advertising expenditure , sale is- dependent variable advertising expenditure is- independent variable.

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Uses
In all fields Regression analysis predicts the value of dependent variables from the value of independent variables. used to calculate r and r . Regression analysis is used in statistical estimation of demand curves, supply curves, production function, cost function and consumption function.

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Types of regression
o Simple Linear Regression o Multiple Regression o Nonlinear Regression

Simple linear regression aims to find a linear relationship between a response variable and a possible predictor variable by the method of least squares.

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Regression
Simple linear regression analysis estimates the relationship between two variables. Simple linear regression estimates relationships of the form y = a + bx. While the terminology is such that we say that X "predicts" Y, we cannot say that X "causes" Y.

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Regression line of X on Y and Y on X

D E P E N D E N t V A R I A B L e

X on Y

Y on X

Independent variable

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The names of the variables on the X and Y axis vary according to the field of application. The analysis is always described as the regression of the response on the carrier Y = a + bX

X-axis

Y-axis

independent

dependent

predictor

predicted

carrier

response

input

output

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The Regression Equation A linear regression equation is usually written Y = a + bX where

Y is the dependent variable a is the constant (intercept) b is the regression coefficient (slope) X is the independent variable (or covariate)

*here we are interested in finding the values of a and b.

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The most commonly used technique for fitting a straight line to a scatter diagram is the leastsquares procedure. In fitting the line, the least-squares procedure minimizes the sum of squared errors or The line of best fit is the one which minimizes the sum of the squares of the vertical distances from the observed points to the line.

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Regression equation

Regression equation of X on Y:

Xe = a + bY where Xe : dependent variable Y : independent variable a & b : constants to be estimated It measures the amount of change in X corresponding to unit change in Y

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Regression equation of Y on X: Ye = a + bX where Ye : dependent variable X: independent variable a & b : constants to be estimated It measures the amount of change in Y corresponding to unit change in X

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Method1:Calculating regression equation by solving two normal equations:equations:Regression equation of X on Y

X=a+ bY To determine values of a and b we will solve two normal equations: X=Na+ b Y (1)

XY=a Y+b Y

(2)

Regression equation of Y on X
X=a+ bY To determine values of a and b we will solve two normal equations: Y=Na+ b X (1)

XY=a X+b X

(2)

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Method2:Method2:-Deviation taken from mean of X and Y:

Regression equation of X on Y:
X - X = bxy (Y - Y)

where : X and Y : mean of X and Y

bxy

regression coefficient of X on Y

/ y x = (X - X) and y = (Y - Y)

= xy

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Deviation taken from mean of Y on X:

Regression equation of Y on X: Y - Y = byx (X - X)
where : X and Y : mean of X and Y

byx

regression coefficient of Y on X = xy

/ x Where x = (X - X) and y = (Y - Y)

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Method2:Method2:-Deviation taken from assumed mean of X and Y:

Regression equation of X on Y:
X - X = bxy (Y - Y) where : X and Y : mean of X and Y bxy = regression coefficient of X on Y = (Ndxdy - dx dy ) /(N dy - (dy) ) Where dx=X-A and dy =Y-B

Regression equation of Y on X:
Y - Y = byx (X - X) where : X and Y : mean of X and Y byx = regression coefficient of Y on X = (Ndxdy - dx dy ) /(N dx - (dx) ) Where dx=X-A and dy =Y-B *you can also use notations as U=dx and V=dy

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Method2:Method2:-Deviation taken from mean of X and Y:

Regression equation of on Y:
X - X = bxy (Y - Y) where : X and Y : mean of X and Y bxy = regression coefficient of X on Y =r( x/ y)

Regression equation of Y on X:
Y - Y = byx (X - X) where : X and Y : mean of X and Y byx = regression coefficient of Y on X =r( y/ x)

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Case 1: The following data (in Rs Crores) Crores) gives expenditure on advertisement and sales of a firm:
Advertisement Expenditure (x)

Sales (y) 90 12

Mean S.D

10 3

Correlation Coefficient =0.8

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Regression equation in a bi-variate grouped frequency: biy

The procedure is same as of deviation method.The modified formulae are: bxy = (Nfdxdy - fdx fdy )h /( fdy - (fdy) ) k byx = (Nfdxdy - fdx fdy ) k /( fdx - (fdx) ) h

*notations can be used in different manner also By taking U=dx and V=dy

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Statistics Associated with Bivariate Regression Analysis

Regression coefficient. The estimated b is usually referred to as the regression coefficient. The coefficient of correlation is the geometric mean of two regression coefficients.i.e. r = byx * bxy (byx + bxy )/2 r If one of the regression coefficient is greater than unity, the other must be less than unity.(bcoz rcannot be greater than 1) Both regression coefficient will always have same sign. If byx is positive , then bxy will also be positive and so that r. If byx is negative , then bxy will also be negative and so that r. Regression coefficients are independent of change of origin but not scale.

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Case2:Case2:A departmental store gives in service training to its salesman which is 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 score and sales by 9 salesman during a certain period: Test scores: 14 19 24 21 26 22 15 20 19 Sales(00Rs): 31 36 48 37 50 45 33 41 39 Calculate the coefficient of correlation between the test scores and the sales. Does it indicate that the termination of service of low test scores is justified ?If the firm wants a minimum sales volume of Rs.3000,what is the probable sales volume of salesman making a score of 28.

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Case3:
The following table give age of car of a certain make and annual maintenance costs. Obtain the regression equation for cost related to age: Age of car(in years):24 6 8 Maintenance cost :10 20 25 30 (in Rs. hundred) Also estimate the annual maintenance cost for ten year old car. Ans:Rs.3750

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Case4:
For some bivariate data following results were obtained: Mean value of variable X=53.2 and of Y=39.5.Regression coefficient of Y on X=-1.5 and regression coeff. of X on Y=-0.38.What should be the most likely value of X when Y=50.Also find the value of r.