Class Exercise on Correlation and Linear Regression

Holmes et al (2018) (Ch. 13) End of Chapter Exercises

Correlations

3. If the correlation between age of an auto and money spent for repairs is +.90

a) 81% of the variation in the money spent for repairs is explained by the age of the auto
b) 81% of money spent for repairs is unexplained by the age of the auto
c) 90% of the money spent for repairs is explained by the age of the auto
d) none of the above

12. The correlation between scores on a neuroticism test and scores on an anxiety test is high and
positive; therefore

a) anxiety causes neuroticism

b) those who score low on one test tend to score high on the other.
c) those who score low on one test tend to score low on the other.
d) no prediction from one test to the other can be meaningfully made.

Regression

25. An economist is interested in the possible influence of "Miracle Wheat" on the average yield of
wheat in a district. To do so he fits a linear regression of average yield per year against year after
introduction of "Miracle Wheat" for a ten year period. The fitted trend line is:

^y j = 80 + 1.5Xj

where

 yj : Average yield in j year after introduction

 Xj : j year after introduction

a) What is the estimated average yield for the fourth year after introduction?
^y j = 80 + 1.5 x 4 = 86
b) Do you want to use this trend line to estimate yield for, say, 20 years after introduction? Why? What
would your estimate be?
No, because the model may not explain patterns 20 years from now. I will collect more data and
revise the model after. Without any additional, my estimate would be y = 80 + 1.5 * 20 = 110

Excel Exercise

Download cars.xlsx from ALICE.

a) Determine the correlation between MPG_City and MPG_highway.

 0.941
2
b) Using the quick shorthand test |r|≥ . Is this correlation significantly different from zero at the
√n
0.05 significance level?
2
= 0.097
√ 428

Since 0.941 > 0.097, it is significantly different from zero at the 0.05 significance level.
c) Create a regression model that explains Invoice (the price of a car) using the following independent
variables: Horsepower and EngineSize.
d) Are Horsepower and EngineSize significant predictors of Invoice?
Yes, Horsepower is significant because 7.435 x 10−77 < 0.05
EngineSize is also significant because 4.770 x 10−7 < 0.05
e) Write the equation for the prediction model.
Price of Car = -11638.9 – 3524.55 EngineSize + 245.13 Horsepower
f) What is the R2 of the regression model. What does it mean?
2
R = 0.697
The regression model can explain 69.7% of the variance in “invoice”.