Regression analysis is a tool for building mathematical and statistical models that

characterize relationships between a dependent variable (which must be a ratio

variable and not categorical) and one or more independent, or explanatory,
variables, all of which are numerical (but may be either ratio or categorical).

Two broad categories of regression models are often used in business settings: (1)
regression models of cross-sectional data and (2) regression models of time-series
data,in which the independent variables are time or some function of time and the
focus is on predicting the future. Time-series regression is an important tool in
forecasting.

1. CROSS-SECTIONAL DATA- is the result of a data collection, carried out at a single

point in time on a statistical unit. With cross-sectional data, we are not interested in
the change of data over time, but in the current, valid opinion of the respondents
about a question in a survey.

For example, if we want to measure current obesity levels in a population, we could

draw a sample of 1,000 people randomly from that population (also known as a
cross section of that population), measure their weight and
height, and calculate what percentage of that sample is categorized as obese.

2. TIME SERIES DATA - is data that is recorded over consistent intervals of time.
Cross-sectional data consists of several variables recorded at the same time. Pooled
data is a combination of both time series data and cross-sectional data. In particular,
a time series allows one to see what factors influence certain variables from period
to period.

What are the 4 types of time series data?

a. Secular trend, which describe the movement along the term;
b. Seasonal variations, which represent seasonal changes;
c. Cyclical fluctuations, which correspond to periodical but not seasonal variations;
d Irregular variations, which are other nonrandom sources of variations of series

SIMPLE REGRESSION - is a regression model that estimates the relationship

between one independent variable and one dependent variable using a straight line.
Both variables should be quantitative.
- A regression model that involves a single independent variable is called simple
regression.

MULTIPLE REGRESSION - the most widely used technique in the social sciences for
measuring the impacts of independent (or explanatory) variables on a dependent
variable
- A regression model that involves two or more independent variables is called
multiple regression.
- works by considering the values of the available multiple independent variables and
predicting the value of one dependent variable.

Example: A researcher decides to study students’ performance from a school over a

period of time. He observed that as the lectures proceed to operate online, the
performance of students started to decline as well. The parameters for the
dependent variable “decrease in performance” are various independent variables
like “lack of attention, more internet addiction, neglecting studies” and much more.

Simple Linear Regression is a statistical technique that attempts to explore the

relationship between one independent variable (X) and one dependent variable (Y).
This method helps a business to identify the relationship between X and Y and the
nature and direction of that relationship. It is a method of statistical analysis that can
be used to study the relationship between two quantitative variables.

Simple linear regression is limited to predicting numeric output i.e., dependent

variable has to be numeric in nature. This method of analysis can handle only two
variables, namely one predictor and one dependent variable.  

Explanation
Simple linear regression is used to model the relationship between two continuous
variables. Often, the objective is to predict the value of an output variable (or
response) based on the value of an input (or predictor) variable.

Simple linear regression is used to estimate the relationship between two quantitative
variables. You can use simple linear regression when you want to know:

How strong the relationship is between two variables (e.g., the relationship between
rainfall and soil erosion).
The value of the dependent variable at a certain value of the independent variable
(e.g., the amount of soil erosion at a certain level of rainfall).

Example:
You are a social researcher interested in the relationship between income and
happiness. You survey 500 people whose incomes range from 15k to 75k and ask
them to rank their happiness on a scale from 1 to 10.
Your independent variable (income) and dependent variable (happiness) are both
quantitative, so you can do a regression analysis to see if there is a linear relationship
between them.

Simple linear regression is a regression model that estimates the relationship between
one independent variable and one dependent variable using a straight line. Both
variables should be quantitative.
For example, the relationship between temperature and the expansion of mercury in a
thermometer can be modeled using a straight line: as temperature increases, the
mercury expands. This linear relationship is so certain that we can use mercury
thermometers to measure temperature.
Variable Relationship
Linear:
The relationship is linear when points in the scatter plot follow a strigtline pattern

Non Linear:
The relationship is non linear when points in the scotterplot follow a pattern but not
a straight line

No relationship:
The relationship has no correlation when
points in the scotter plot do not show any pattern

Example : The market value of a house is typically related to its size.

In the Excel file Home Market Value (see Figure 8.6), data
obtained from a county auditor provide information about
the age, square footage, and current market value of houses
in a particular subdivision. We might wish to investigate the
relationship between the market value and the size of the
home. The independent variable, X, is the number of square
feet, and the dependent variable, Y, is the market value.

Figure 8.7 shows a scatter chart of the market value

in relation to the size of the home. In general, we see that
higher market values are associated with larger house sizes,
and the relationship is approximately linear. Therefore, we
could conclude that simple linear regression would be an
appropriate technique for predicting market value based on
house size.