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Linear Regression is a form of statistical approach, allegedly invented by Carl Friedrich Gauss. However, it was first published by Adrien-Marie Legendre in a scientific paper.
A Linear Regression is useful to examine and establish a relationship between the two separate variables – independent or explanatory and dependent or response variables.
Linear Regression further breaks down into two categories –
# Simple Linear Regression: The model includes one independent variable
# Multiple Linear Regression: This model includes more than one independent variable
Linear Regression is used in various industries. In general, its applications fall into two categories:
The model can be used as a predictive model when the goal of the analyst is prediction or error reduction.
It can be applied when you want to understand the strength of the relationship between the independent and dependent variables. It helps to determine whether the variables have any relationship or not. Additionally, it is used to identify the subset of the independent variable that has an influence on the dependent variable.
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Linear Regression Analysis is a type of Regression Analysis that is used to find an equation that fits the data.
You can use a Simple Linear Regression when:
A correlation coefficient can likely predict future outcomes
The data points in the scatter plot form a linear line
The equation is in the form of “Y = a + bX”. You may also recognize it as the slope formula.
Y = Dependent variable
X = Independent variable
b = Slope of the line
a = y-intercept
To find the linear equation by hand, you need to get the value of “a” and “b”.
Then substitute the resulting value in the slope formula and that gives you your linear regression equation.
We will take the following example to understand how it is done. There are a few steps you need to follow to find your correlation coefficient.
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Lets take the dataset as an example:
Money Spent (X)
Avg(X) – X
[Avg(X) – X]^2
Avg(Y) – Y
[Avg(X)-X * Avg(Y)-Y]
Find the average of the
Measure the difference between the Average X and individual X
Square the difference and add the result: SUM XX = 5, 800,000
Multiple the between Avg(X)-X and Avg(Y)-Y and add the results: SUM XY = 37,918,000
To calculate the Slope of the Line, divide the SUM XY by SUM XX
To calculate the y-intercept subtract Avg(Y) from Slope * AVG(X)
So, now you have a SImple Linear Regression
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