Regression Analysis

Introduction of Regression Analysis

REGRESSION ANALYSIS
Meaning and Definition of Regression Analysis Correlation analysis helps to know whether two
variables are related or not. Once the relationship between two variables is established, the
same may be used for the purpose of predicting the unknown value of one variable on the basis
of the known value of the other. For this purpose we have to examine the average functional
relationship exists between the variables. This is known as regression analysis.

Regression analysis may be defined as the process of ascertaining the average functional
relationship exists between variables so as to facilitate the mechanism of prediction or
estimation or forecasting. Regression analysis helps to predict the unknown values of a variable
with the help of known values of the other variable. The term regression was firstly
used by Francis Galton.

Types of Regression
Regression may be classified as follows:
I. On the basis of number of variables:
(a) Simple Regression
(b) Multiple Regression
II. On the basis of Proportion of change in the variables:
(a) Liner Regression
(b) Non-liner Regression

1. Simple Regression
In a regression analysis, if there are only two variables, it is called simple regression analysis.
2. Multiple Regression
In a regression analysis, if there are more than two variables, it is called multiple regression
analysis.
3. Linear Regression
In a regression analysis, if linear relation existsbetween variables, it is called linear regression
analysis. Under this, when we plot the data on a graph paper, we get a straight line. Here, the
relationship exists between variables can be expressed in the form of y = a + bx. In case of linear
regression, the change in dependent variable is proportionate to the changes in the
independent variable.
4. Non-linear Regression:
 In case of non-linear regression, the relation between the variables cannot be expressed in the
form of y = a + bx. When the data are plotted on a graph, the dots will be concentrated, more or
less, around a curve. This is also called curvi-linear regression.

Regression analysis usage in market research

A market research survey focuses on three major matrices; Customer Satisfaction, Customer
Loyalty, and Customer Advocacy. Remember, although these matrices tell us about customer
health and intentions, they fail to tell us ways of improving the position. Therefore, an in-depth
survey questionnaire intended to ask consumers the reason behind their dissatisfaction is
definitely a way to gain practical insights.
However, it has been found that people often struggle to put forth their motivation or
demotivation or describe their satisfaction or dissatisfaction. In addition to that, people always
give undue importance to some rational factors, such as price, packaging, etc. Overall, it acts as
a predictive analytic and forecasting tool in market research.
When used as a forecasting tool, regression analysis can determine an organization’s sales
figures by taking into account external market data. A multinational company conducts a market
research survey to understand the impact of various factors such as GDP (Gross Domestic
Product), CPI (Consumer Price Index), and other similar factors on its revenue generation model.
Obviously, regression analysis in consideration of forecasted marketing indicators was used to
predict a tentative revenue that will be generated in future quarters and even in future years.
However, the more forward you go in the future, the data will become more unreliable, leaving
a wide margin of error.
Case study of using regression analysis
A water purifier company wanted to understand the factors leading to brand favorability. The
survey was the best medium for reaching out to existing and prospective customers. A large-
scale consumer survey was planned, and a discreet questionnaire was prepared using the best
survey tool.
A number of questions related to the brand, favorability, satisfaction, and probable
dissatisfaction were effectively asked in the survey. After getting optimum responses to the
survey, regression analysis was used to narrow down the top ten factors responsible for driving
brand favorability.
All the ten attributes derived (mentioned in the image below) in one or the other way
highlighted their importance in impacting the favorability of that specific water purifier brand.
MULTIPLE REGRESSION
In multiple regression there are more than two variables. Here, we examine the effect of two or
more xIndependent variables on one dependent variable. Suppose there are three variables,
namely, x1, x2 and x3. Here we may find three regression equations. They are:
1. Regression equation of x1 on x2 and x3
2. Regression equation of x2 on x1 and x3
3. Regression equation of x3 on x1 and x2
Equations of regression lines are generally termed as
equations of planes of regression. Following are the formulae
for computing the above 3 regression plane equations:
1. Regression equation of x1 on x2 and x3:
(x1 – x̄1) = b12.3(x2 – x̄2) + b13.2(x3 – x̄3)
2. Regression equation of x2 on x1 and x3:
(x2 – x̄2) = b21.3(x1 – x̄1) + b23.1(x3 – x̄3)
3. Regression equation of x3 on x1 and x2:
(x3 – x̄3) = b31.2(x1 – x̄1) + b32.1(x2 – x̄2)
where x̄1, x̄2 and x̄3 are actual means of x1, x2 and x3
respectively
Advantages of using regression analysis in an online survey
01. Get access to predictive analytics
Do you know utilizing regression analysis to understand the outcome of a business survey is like
having the power to unveil future opportunities and risks?
For example, after seeing a particular television advertisement slot, we can predict the exact
number of businesses using that data to estimate a maximum bid for that slot. The finance and
insurance industry as a whole depends a lot on regression analysis of survey data to identify
trends and opportunities for more accurate planning and decision-making.
02. Enhance operational efficiency
Do you know businesses use regression analysis to optimize their business processes?
For example, before launching a new product line, businesses conduct consumer surveys to
better understand the impact of various factors on the product’s production, packaging,
distribution, and consumption.
A data-driven foresight helps eliminate the guesswork, hypothesis, and internal politics from
decision-making. A deeper understanding of the areas impacting operational efficiencies and
revenues leads to better business optimization.
03. Quantitative support for decision-making
Business surveys today generate a lot of data related to finance, revenue, operation, purchases,
etc., and business owners are heavily dependent on various data analysis models to make
informed business decisions.
04. Prevent mistakes from happening due to intuitions
By knowing how to use regression analysis for interpreting survey results, one can easily provide
factual support to management for making informed decisions. ; but do you know that it also
helps in keeping out faults in the judgment?
Limitations
Despite the above utilities and usefulness, the technique of regression analysis suffers form the
following serious limitations:
· 1 .It is assumed that the cause and effect relationship between the variables remains
unchanged. This assumption may not always hold good and hence estimation of the
values of a variable made on the basis of the regression equation may lead to erroneous
and misleading results.
· 2. The functional relationship that is established between any two or more variables on
the basis of some limited data may not hold good if more and more data are taken into
consideration. For example, in case of the Law of Return, the law of diminishing return
may come to play, if too much of inputs are used with ca view to increasing the volume
of output.
· 3. It involves very lengthy and complicated procedure of calculations and analysis.
· 4. It cannot be used in case of qualitative phenomenon viz. honesty, crime etc.

From the following data, fit the two regression equations:

x45821
y56732
Sol:
Regression Equation X on Y is:
X = a + bY
The normal equations to find the values of ‘a’ and ‘b’
are:
εX = Na + bεY, and
εXY = aεY + bεYsq

Computation of Regression Equations

x y Xy xsq ysq
4 5 20 16 25
5 6 30 25 36
8 7 56 64 49
2 3 6 4 9
1 2 2 1 4
εX=20 εY=23 εXY=114 εXsq=110 εYsq=123

You are given the following bivariate data:

X72112326
Y26432284
Using regression coefficients:
(a) Fit the regression equation of Y on X and predict Y if X = 5
(b) Fit the regression equation of X on Y and predict X if Y = 20

Sol.
The regression Equation Y on X is:
Y – Ȳ = byx (X – X̄)
Assumed mean method is used to find byx
byx = nεdxdy – [(εdx) (εdy)]
nεdxsq– (εdx)

Computation of Regression Equations

X Y dx dy dxdy dxsq dysq
(X–4) (Y–3)
7 2 3 -1 -3 9 1
2 6 -2 3 -6 4 9
1 4 -3 1 -3 9 1
1 3 -3 0 0 9 0
2 2 -2 -1 2 4 1
3 2 -1 -1 1 1 1
2 8 -2 5 -10 4 25
6 4 2 1 2 4 1
X=24 Y=31 εdx = -8 εdy = 7 εdxdy= -17 εdx2 =44 εdy2= 39

byx = 8 x -17 – (-8 x 7)

8 x 44 – (-8)sq
= (-136 –-56) / (352 – 64) = -80/288 = – 0.278
X̄ = εX/n = 24/8 = 3
Ȳ = εY/n = 31/8 = 3.875
The regression Equation Y on X is:
Y – 3.875 = – 0.278 (X – 3)
Y = – 0.278 X + 0.834 + 3.875 = – 0.278 X + 4.709
Y = – 0.278 X + 4.709

If X=5, Y = (-0.278 x 5) + 4.709 = -1.39 + 4.709 = 3.31

The regression Equation X on Y is:
X – X̄ = bxy (Y – Ȳ )
 bxy = nεdxdy – [(εdx) (εdy)]
nεdysq– (εdy)sq

bxy = 8 x -17 – (-8 x 7)

8 x 39 – (7)sq
= (-136 –-56) / (312 – 49) = -80/263 = – 0.3042
X̄ = εX/n = 24/8 = 3
Ȳ = εY/n = 31/8 = 3.875
The regression Equation X on Y is:
X – 3 = – 0.3042 (Y – 3.875)
X = – 0.3042 Y + 1.179 + 3 = – 0.3042Y + 4.179
X = – 0.3042Y + 4.179
If Y=20, X = (-0.3042 x 20) + 4.179 = -6.084 + 4.179
= –1.905