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    Trendlines and Regression Analysis

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    ANUSHKA Gupta

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    Trendlines and Regression Analysis

    Uploaded by

    ANUSHKA Gupta
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    16 views17 pages

    Trendlines and Regression Analysis

    Uploaded by

    ANUSHKA Gupta

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    © All Rights Reserved
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    Trendlines and Regression

    Analysis

    Jaypee Business School, Jaypee Institute of Information Slide - 1


    Modeling Relationships and Trends
    in Data
    • Create charts to better understand data sets.
    • For cross-sectional data, use a scatter chart.
    (Cross-sectional data is a type of data collected
    at a single point in time from a sample of
    individuals, objects, or entities. It provides a
    snapshot of a population or sample at a particular
    moment.)
    • For time series data, use a line chart.

    Jaypee Business School, Jaypee


    Copyright Institute
    © 2021 Pearson Educationof
    Ltd. Information Slide - 2
    Common Mathematical Functions
    Used n Predictive Analytical Models
    Linear
    Logarithmic
    Polynomial (2nd order)
    Polynomial (3rd order)
    Power
    Exponential

    (the base of natural logarithms, is often


    used for the constant b)
    Jaypee Business School, Jaypee
    Copyright Institute
    © 2021 Pearson Educationof
    Ltd. Information Slide - 3
    Excel Trendline Tool
    • Right click on data series
    and choose Add trendline
    from pop-up menu.
    • Check the boxes Display
    Equation on chart and
    Display R-squared value
    on chart.

    Jaypee Business School, Jaypee


    Copyright Institute
    © 2021 Pearson Educationof
    Ltd. Information Slide - 4
    R Squared
    • (R-squared) is a measure of the “fit” of the
    line to the data.
    – The value of will be between 0 and 1.
    – A value of 1.0 indicates a perfect fit and all
    data points would lie on the line; the larger the
    value of the better the fit.

    Jaypee Business School, Jaypee


    Copyright Institute
    © 2021 Pearson Educationof
    Ltd. Information Slide - 5
    Example 8.1: Modeling a
    Price-Demand Function
    Linear demand function:

    Jaypee Business School, Jaypee


    Copyright Institute
    © 2021 Pearson Educationof
    Ltd. Information Slide - 6
    Example 8.2: Predicting Crude Oil
    Prices (1 of 3)
    • Line chart of historical crude oil prices

    Jaypee Business School, Jaypee


    Copyright Institute
    © 2021 Pearson Educationof
    Ltd. Information Slide - 7
    Example 8.2: Predicting Crude Oil
    Prices (2 of 3)
    • Excel’s Trendline tool is used to fit various functions to
    the data.

    Exponential
    Logarithmic
    Polynomial 2°
    Polynomial 3°
    Power

    Jaypee Business School, Jaypee


    Copyright Institute
    © 2021 Pearson Educationof
    Ltd. Information Slide - 8
    Example 8.2: Predicting Crude Oil
    Prices (3 of 3)
    • Third order polynomial trendline fit to the data

    Jaypee Business School, Jaypee


    Copyright Institute
    © 2021 Pearson Educationof
    Ltd. Information Slide - 9
    Regression Analysis
    • Regression analysis is a tool for building
    mathematical and statistical models that characterize
    relationships between a dependent (ratio) variable
    and one or more independent, or explanatory
    variables (ratio or categorical), all of which are
    numerical.
    • Simple linear regression involves a single
    independent variable.
    • Multiple regression involves two or more
    independent variables.
    Jaypee Business School, Jaypee
    Copyright Institute
    © 2021 Pearson Educationof
    Ltd. Information Slide - 10
    Simple Linear Regression
    • Finds a linear relationship between:
    – one independent variable X and
    – one dependent variable Y
    • First prepare a scatter chart to verify the data has a linear
    trend.
    • Use alternative approaches if the data is not linear.

    Jaypee Business School, Jaypee


    Copyright Institute
    © 2021 Pearson Educationof
    Ltd. Information Slide - 11
    Example 8.3: Home Market Value
    Data
    Size of a house is
    typically related to its
    market value.

    X = square footage
    Y = market value ($)
    The scatter chart of
    the full data set (42
    homes) indicates a
    linear trend.

    Jaypee Business School, Jaypee


    Copyright Institute
    © 2021 Pearson Educationof
    Ltd. Information Slide - 12
    Finding the Best-Fitting Regression
    Line
    • Market value

    • Two possible lines are shown below.

    • Line A is clearly a better fit to the data.


    • We want to determine the best regression line.

    Jaypee Business School, Jaypee


    Copyright Institute
    © 2021 Pearson Educationof
    Ltd. Information Slide - 13
    Example 8.4: Using Excel to Find the
    Best Regression Line
    • Market value

    – The estimated market value of a home with 2,200 square feet


    would be: market value

    The regression model


    explains variation in market
    value due to size of the
    home.
    It provides better estimates
    of market value than simply
    using the average.

    Jaypee Business School, Jaypee


    Copyright Institute
    © 2021 Pearson Educationof
    Ltd. Information Slide - 14
    Simple Linear Regression with Excel

    Input Y Range
    (with header)
    Input X Range
    (with header)
    Check Labels box

    Excel outputs a table


    with many useful
    regression statistics.

    Jaypee Business School, Jaypee


    Copyright Institute
    © 2021 Pearson Educationof
    Ltd. Information Slide - 15
    Home Market Value Regression
    Results

    Jaypee Business School, Jaypee


    Copyright Institute
    © 2021 Pearson Educationof
    Ltd. Information Slide - 16
    Example 8.6: Interpreting Regression
    Statistics for Simple Linear Regression

    Jaypee Business School, Jaypee


    Copyright Institute
    © 2021 Pearson Educationof
    Ltd. Information Slide - 17

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