Business

` Analytics
Regression Analysis
Regression Analysis

• Regression analysis is a tool for building statistical models that

characterize relationships among a dependent variable and one
or more independent variables, all of which are numerical.

• Simple linear regression involves a single independent variable.

• Multiple regression involves two or more independent variables.

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Regression Practice in Business

Why customer service calls dropped in the past year or

even the past month.

Predict what sales will look like in the next six month.

Whether to chose one marketing promotion over

another.

Whether to expand the business or create and market a

new product.

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 Importance of Regression Analysis

How do those
elements interact with
one another, and
Which factors are Which of these may
perhaps most
most important we disregard
significantly, how
confident are we in all
of these variables

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The Five Applications of Regression Analysis

Predictive analytics

Operation efficiency

Supporting decisions

Correcting errors

New Insights

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FOUNDATIONAL CONCEPTS FOR REGRESSION ANALYSIS

Independent and Correlation vs.

Dependent Causation
Variables
• Correlation:
• Independent positively and
and Dependent negatively
Variables correlated
• Causation:
Causation
means that one
variable caused
the other to
occur.
“I want to understand the impact of
employee satisfaction on product
sales.”

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 Simple Linear Regression
 Finds a linear relationship between:
- one independent variable X and
- one dependent variable Y
First prepare a scatter plot to verify the data has a
linear trend.

ŷ is the expected value of Y (the dependent variable)

x is the independent variable.
α is the Y-intercept, the point at which the regression
line intersects with the vertical axis.
β is the slope of the regression line
ε is the error term, equal to Y – ŷ, or the difference
between the actual value of the dependent variable and
its expected value.
 

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 Simple Linear Regression

Primarily, there are two things which can be found out by

using the method of simple linear regression:
 

Strength of the relationship between the given

duo of variables. (For example, the relationship
between global warming and the melting of
glaciers)

How much the value of the dependent variable is

at a given value of the independent variable. (For
example, the amount of melting of a glacier at a
certain level of global warming or temperature)

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 Multiple Linear Regression

used to determine the relationship between three or more

variables: the dependent variable and at least two independent
variables.

For each independent variable you include in the

regression, multiply the slope of the regression line
by the value of the independent variable, and add it
to the rest of the equation.

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