Business Analytics

Regression Analysis (Data Analysis Technique-2)

Case-1
In finance, it is of interest to look at the relationship between Y, a stocks average return, and
X, the overall market return. The slope coefficient computed by linear regression is called the
stocks beta by investment analysts. A beta greater than 1 indicates that stock is relatively
sensitive to changes in the market; a beta less than 1 indicates that the stock is relatively
insensitive. For the following data, compute the beta and test to see whether it is significantly
less than 1. Use =0.05.

Stock's Average Return (%) 10 12 8 15 9 11 8 10 13 11
Overall Market Return (%) 11 15 3 18 10 12 6 7 18 13

Case-2
Neds Beds is considering hiring an advertising firm to stimulate business. Neds brother
Fred has done some research in the bed adverting field, and he has collected the following
data concerning the amount of profit a bed company earns and the amount spent on
advertising. If Fred computes the regression equation, the slope of the line will indicate the
amount of profit increase per dollar spent on advertising. Ned will advertise only if the
amount of profit earned from $1 in advertising exceeds $1.50. At a significant level of 0.05,
will Ned Advertise?

Amount of Advertising ($ thousands) 3.6 4.8 9.7 12.6 11.5 10.9
Amount of Profit ($ thousands) 12.13 14.7 22.83 28.4 28.33 27.05
Amount of Advertising ($ thousands) 14.6 18.2 3.7 9.8 12.4 16.9
Amount of Profit ($ thousands) 33.6 40.8 9.4 24.84 30.17 34.7



Case-3
The HR consultant of a company is interested in seeing how accurately a new job-
performance index measures what is important for the company. One way to check is to look
at the relationship between the job-performance index and an employees salary. A sample of
eight employees was taken, and the information about salary (in thousands of dollars) and
job-performance index (1-10; 10 is the best) was collected.

Job-performance index 9 7 8 4 7 5 5 6
Salary 36 25 33 15 28 19 20 22

a) Develop an estimating equation that best describes these data.
b) Can job-performance index successfully predict the salary based on these data?
c) Discuss the efficacy of the job-performance index used by the company based on
these data.