Chapter Seven

Regression and Correlation

 7.1.Linear Correlation

 Measures the relative strength of the linear relationship

between two variables.
 Ranges between –1 and 1.
 The closer to –1, the stronger the negative linear
relationship.
 The closer to 1, the stronger the positive linear relationship.
 The closer to 0, the weaker any positive linear relationship.

03/15/2024 By: AbdulHamid Yusuf - Lecturer of Management Dep 2

artment (HU)
 …Linear Correlation

r = -1 r = - 0.6 r=0
Y Y Y

X . X X
r = +1 r = + 0.3 r=0
Y
Y Y

X X X
By: AbdulHamid Yusuf - Lecturer of Management Department
03/15/2024 3
(HU)
 …Linear Correlation

Linear relationships Curvilinear relationships

Y Y

X X

Y Y

X X
03/15/2024 By: AbdulHamid Yusuf - Lecturer of Management Dep 4
artment (HU)
 …Linear Correlation

Strong relationships Weak relationships

Y Y

X X

Y Y

X X
03/15/2024 By: AbdulHamid Yusuf - Lecturer of Management Dep 5
artment (HU)
 …Linear Correlation

No relationship

X
03/15/2024 By: AbdulHamid Yusuf - Lecturer of Management Dep 6
artment (HU)
 Correlation Coefficient

03/15/2024 By: AbdulHamid Yusuf - Lecturer of Management Dep 7

artment (HU)
 Illustration

 Consider 11 families randomly selected from the population

of families with one brother and one sister, both full grown.
Let denote the height (in inches) of the brother in the
family. Let denote the height (in inches) of the sister in the
family.

03/15/2024 By: AbdulHamid Yusuf - Lecturer of Management Dep 8

artment (HU)
 …Illustration

No.
1 71 69
2 68 64
3 66 65
4 67 63
5 70 65
6 71 62
7 70 65
8 73 64
9 72 66
10 65 59
11 66 62

03/15/2024 By: AbdulHamid Yusuf - Lecturer of Management Dep 9

artment (HU)
 Solution
No. () ()

1 71 69
2 68 64
3 66 65
4 67 63
𝒙=
∑ 𝒙 𝒊 𝟕𝟓𝟗
= =𝟔𝟗
5 70 65
𝒏𝒙 𝟏𝟏
6 71 62
7 70 65
8 73 64
9 72 66
10 65 59
11 66 62
03/15/2024 Total 759 704 By: AbdulHamid Yusuf - Lecturer of Management Dep 10
artment (HU)
 …Solution
No. () ()

1 71 69 2
2 68 64 -1
3 66 65 -3
4 67 63 -2
𝒙=
∑ 𝒙 𝒊 𝟕𝟓𝟗
= =𝟔𝟗
5 70 65 1
𝒏𝒙 𝟏𝟏
6 71 62 2
7 70 65 1
8 73 64 4
9 72 66 3
10 65 59 -4
11 66 62 -3
03/15/2024 Total 759 704 0 AbdulHamid Yusuf - Lecturer of Management Dep
By: 11
artment (HU)
 …Solution
No. () ()

1 71 69 2 5
2 68 64 -1 0
3 66 65 -3 1
4 67 63 -2 -1
𝒚=
∑ 𝒚 𝒊 𝟕𝟎𝟒
= =𝟔𝟒
5 70 65 1 1
𝒏𝒚 𝟏𝟏
6 71 62 2 -2
7 70 65 1 1
8 73 64 4 0
9 72 66 3 2
10 65 59 -4 -5
11 66 62 -3 -2
03/15/2024 Total 759 704 0 AbdulHamid0Yusuf - Lecturer of Management Dep
By: 12
artment (HU)
 …Solution
No. () ()

1 71 69 2 5 10 4 25
2 68 64 -1 0 0 1 0
3 66 65 -3 1 -3 9 1
4 67 63 -2 -1 2 4 1
5 70 65 1 1 1 1 1
6 71 62 2 -2 -4 4 4
7 70 65 1 1 1 1 1
8 73 64 4 0 0 16 0
9 72 66 3 2 6 9 4
10 65 59 -4 -5 20 16 25
11 66 62 -3 -2 6 9 4
03/15/2024 Total 759 704 0 AbdulHamid0Yusuf - Lecturer39
By: of Management Dep74 66 13
artment (HU)
 …Solution
No. () ()

1 71 69 2 5 10 4 25
2 68 64 -1 0 0 1 0
3 66 65 -3 1 -3 9 1
4 67 63 -2 -1 2 4 1
5 70 65 1 1 1 1 1
6 71 62 2 -2 -4 4 4
7 70 65 1 1 1 1 1
8 73 64 4 0 0 16 0
9 72 66 3 2 6 9 4
10 65 59 -4 -5 20 16 25
11 66 62 -3 -2 6 9 4
03/15/2024 Total 759 704 0 AbdulHamid0Yusuf - Lecturer39
By: of Management Dep74 66 14
artment (HU)
 …Solution
No. () ()

1 71 69 2 5 10 4 25
2 68 64 -1 0 0 1 0
3 66 65 -3 1 -3 9 1
4 67 63 -2 -1 2 4 1
5 70 65 1 1 1 1 1
6 71 62 2 -2 -4 4 4
7 70 65 1 1 1 1 1
8 73 64 4 0 0 16 0
9 72 66 3 2 6 9 4
10 65 59 -4 -5 20 16 25
11 66 62 -3 -2 6 9 4
03/15/2024 Total 759 704 0 AbdulHamid0Yusuf - Lecturer39
By: of Management Dep74 66 15
artment (HU)
 …Solution
No. () ()

1 71 69 2 5 10 4 25
2 68 64 -1 0 0 1 0
3 66 65 -3 1 -3 9 1
4 67 63 -2 -1 2 4 1
5 70 65 1 1 1 1 1
6 71 62 2 -2 -4 4 4
7 70 65 1 1 1 1 1
8 73 64 4 0 0 16 0
9 72 66 3 2 6 9 4
10 65 59 -4 -5 20 16 25
11 66 62 -3 -2 6 9 4
03/15/2024 Total 759 704 0 AbdulHamid0Yusuf - Lecturer39
By: of Management Dep74 66 16
artment (HU)
 Rank Correlation

𝟔∑ 𝒅
𝟐
𝒓 𝒔 =𝟏 −
𝒏 ( 𝒏 −𝟏 ) 𝟐

03/15/2024 By: AbdulHamid Yusuf - Lecturer of Management Dep 17

artment (HU)
 Illustration

 The following data shows the annual income per head of

population, (in US $) and the infant mortality, (per thousand
live births) for a sample of 11 countries:

03/15/2024 By: AbdulHamid Yusuf - Lecturer of Management Dep 18

artment (HU)
 …Illustration

Country
 The following data shows the annual income per head of
A 130 150
population, (in US $) and the infant mortality, (per thousand
B 5950 43
live births) for
C a sample of 11560countries: 121
D 2010 53
E 1870 41
F 170 169
G 390 143
H 580 59
I 820 75
J 6620 20
K 3800 39

03/15/2024 By: AbdulHamid Yusuf - Lecturer of Management Dep 19

artment (HU)
 Solution

𝟔∑ 𝒅
𝟐
𝒓 𝒔 =𝟏 −
𝒏 ( 𝒏 −𝟏 ) 𝟐

03/15/2024 By: AbdulHamid Yusuf - Lecturer of Management Dep 20

artment (HU)
 …Solution
Country Ranak Ranak
A 130 150 1 10 -9 81
B 5950 43 10 4 6 36
C 560 121 4 8 -4 16
D 2010 53 8 5 3 9
E 1870 41 7 3 4 16
F 170 169 2 11 -9 81
G 390 143 3 9 -6 36
H 580 59 5 6 -1 1
I 820 75 6 7 -1 1
J 6620 20 11 1 10 100
K 3800 39 9 2 7 49
Total 416
03/15/2024 By: AbdulHamid Yusuf - Lecturer of Management Dep 21
artment (HU)
 …Solution
Country Ranak Ranak
A 130 150 1 10 -9 81
B 5950 43 10 4 6 36
C 560 121 4 8 -4 16
D 2010 53 8 5 3 9
E 1870 41 7 3 4 16
F 170 169 2 11 -9 81
G 390 143 3 9 -6 36
H 580 59 5 6 -1 1
I 820 75 6 7 -1 1
J 6620 20 11 1 10 100
K 3800 39 9 2 7 49
Total 416
03/15/2024 By: AbdulHamid Yusuf - Lecturer of Management Dep 22
artment (HU)
 …Solution
Country Ranak Ranak
A 130 150 1 10 -9 81
B 5950 43 10 4 6 36
C 560 121 Since4the value
Conclusion: 8 of (rank
-4 16

D 2010 53 coefficient)
correlation 8 5
is -0.936 3 9
E 1870 41we can
(negative) 7 conclude3 that 4are 16
F negatively
170 169related.
2 11 -9 81
G 390 143 3 9 -6 36
H 580 59 5 6 -1 1
I 820 75 6 7 -1 1
J 6620 20 11 1 10 100
K 3800 39 9 2 7 49
Total 416
03/15/2024 By: AbdulHamid Yusuf - Lecturer of Management Dep 23
artment (HU)
 7.2. Simple Linear Regression

 Regression may be defined as the estimation or prediction of

the unknown value of one variable from the known values of
one or more variables.
 The variable whose values are to be estimated or predicted is
known as dependent or explained variable.
 The variable/s which are used in determining the value of the
dependent variable is/are called independent or predictor
variable/s.
 A mathematical equation that defines the relationship
between two variables is called regression equation.
 The line that gives the best estimate of one variable for any
given value of another variable is called regression line.

03/15/2024 By: AbdulHamid Yusuf - Lecturer of Management Dep 24

artment (HU)
 …Simple Linear Regression

 What is “Linear”?
 Remember: ?

03/15/2024 By: AbdulHamid Yusuf - Lecturer of Management Dep 25

artment (HU)
 …Simple Linear Regression

Not Linear
 Linear

Y Y

x x
residuals

residuals
x x

03/15/2024 By: AbdulHamid Yusuf - Lecturer of Management Dep 26

artment (HU)
 …Simple Linear Regression

 Regression Equation:

03/15/2024 By: AbdulHamid Yusuf - Lecturer of Management Dep 27

artment (HU)
 Curve Fitting

 Curve fitting, also known as regression analysis, is used to

find the "best fit" line or curve for a series of data points.
 Curve fitting examines the relationship between one or more
predictors (independent variables) and a response variable
(dependent variable), with the goal of defining a "best fit"
model of the relationship.

03/15/2024 By: AbdulHamid Yusuf - Lecturer of Management Dep 28

artment (HU)
 …Curve Fitting

03/15/2024 By: AbdulHamid Yusuf - Lecturer of Management Dep 29

artment (HU)
 Least Squares Method

 The least squares method is a procedure for using sample

data to find the estimated regression equation.

03/15/2024 By: AbdulHamid Yusuf - Lecturer of Management Dep 30

artment (HU)
 Illustration

 Suppose data were collected from a sample of 10 Armand’s

Pizza restaurants. For the observation or restaurant in the
sample, is the size of the student population (in thousands)
and is the quarterly sales (in thousands of dollars). The
values of and for the 10 restaurants in the sample are
summarized below.

03/15/2024 By: AbdulHamid Yusuf - Lecturer of Management Dep 31

artment (HU)
 …Illustration

Restaurant () Student Population Quarterly Sales

(1000s) ($1000s)
1 2 58
2 6 105
3 8 88
4 8 118
5 12 117
6 16 137
7 20 157
8 20 169
9 22 149
10 26 202

03/15/2024 By: AbdulHamid Yusuf - Lecturer of Management Dep 32

artment (HU)
 Solution

03/15/2024 By: AbdulHamid Yusuf - Lecturer of Management Dep 33

artment (HU)
 …Solution

Restaur
Population Sales
ant ()
1 2 58 116 4
2 6 105 630 36
3 8 88 704 64
4 8 118 944 64
5 12 117 1404 144
6 16 137 2192 256
7 20 157 3140 400
8 20 169 3380 400
9 22 149 3278 484
10 26 202 5252 676
Total 140 1300 21040 2528
03/15/2024 By: AbdulHamid Yusuf - Lecturer of Management Dep 34
artment (HU)
 …Solution

03/15/2024 By: AbdulHamid Yusuf - Lecturer of Management Dep 35

artment (HU)
 …Solution

03/15/2024 By: AbdulHamid Yusuf - Lecturer of Management Dep 36

artment (HU)
End of Chapter Seven