We can place the line "by

eye": try to have the line as

close as possible to all
points, and a similar number
of points above and below
the line.

But for better accuracy let's

see how to calculate the line
using Least Squares
Regression.
 r – squared
or
Coefficient of Determination
 r – Coefficient of Correlation

In econometrics, the correlation coefficient r measures the strength and direction of a

linear relationship between two variables on a scatterplot. The value of r is always between
+1 and –1. To interpret its value, see which of the following values your correlation r is
closest to:
 a) r = + 1

b) r = - 0.5

c) r = + 0.85

d) r = + 0.15

Dispersion vs. Concentration

Рассеивание Скопление
Разбросанность Концентрация
Notice that this line doesn't seem to fit the data very
well. One way to measure the fit of the line is to
calculate the sum of the squared residuals—this
gives us an overall sense of how much prediction
error a given model has.
So without least-squares regression, our
sum of squares is 41.187941

Would using least-squares regression

reduce the amount of prediction error? If
so, by how much? Let's see!
Using least-squares regression reduced
the sum of the squared residuals
from 41.1879 to 13.7627

So using least-squares regression

eliminated a considerable amount of
prediction error. How much though?