1 Correlation Analysis

 
Independent
Variables

Jackie
Dependent
Variable

US$/€
2 Multiple Linear Regression with All 3 Analysts
  Shahrukh Chan Brad (Actual) Strength of relationship Compares avg, values of data Evidence to reject the
between relative movements Standard sets to determine if they came null hypothesis?
of two variables deviation from same population
Shahrukh 1 0.792 0.131 0.830
Coefficients Standard Error t Stat P-value 0.05 Significance
Intercept 0.237 0.055 4.336 1.43E-04 Yes
Jackie 0.792 1 0.503 0.848 Shahrukh 0.536 0.079 6.783 1.35E-07 Yes
Chan
Jackie Chan 0.025 0.095 0.265 0.793 No
Brad 0.238 0.041 5.756 2.46E-06 Yes
Brad 0.131 0.503 1 0.561
R Square 0.896
Standard Error 0.056
US$/€
(Actual) 0.830 0.848 0.561 1

Correlation >0.7 – variable How accurate the mean of any given sample from that population
Proportion of variance in dependent variable that is
becomes redundant predictable from independent variable. is likely to be compared to the true population mean

High correlation between Jackie and

Shahrukh
Remove the one with highest p value

Jackie Chan's coefficient is very low and P-value >0.05

3 Multiple Linear Regression only with Brad and Shahrukh

  Coefficients Standard Error t Stat P-value 0.05 Significance

4 Would one be enough?

Intercept 0.237 0.054 4.421 1.06E-04 Yes Looking at each analyst separately, below are
Brad 0.245 0.031 8.007 3.85E-09 Yes the forecast price estimates for each:
13.38
Shahrukh 0.553 0.041 7 1.17E-14 Yes 0.299
  x Brad R Square =
0.315
R Square 0.896
Standard Error 0.055 0.597 x Shahrukh R Square =
0.688
R square and Standard error remain unchanged
0.643 x Jackie R Square =
Removing Jackie Chan gives model with similar R Square and Standard Error as 0.710
the one with all 3 Analysts
R Square is lower in individual models
compared to previous two
  0.245 x Brad + 0.553 x Shahrukh The forecast model by Brad and Shahrukh
more reliable than any individual one
Conclusion
• Both economics graduates from University of Chicago
Jackie Chan and Shahrukh • Both use very similar analytical approaches
have a very high correlation • No added value of having both on team

Brad and Shahrukh have very • Brad with a History major from Oxford uses different
low correlation approach
• Complements well Shahrukh’s skills

Fire Jackie Chan and keep • Vladimir overlooked the correlation between
Brad and Shahrukh the analysts
• The statistical analysis supports Angelina’s
intuition