How To Analyze The Regression Analysis Output From Excel
How to Analyze the Regression Analysis Output from Excel
In a simple regression model, we are trying to determine if a variable Y is linearly dependent on variable X. That is, whenever X changes, Y also changes linearly. A linear relationship is a straight line relationship. In the form of an equation, this relationship can be expressed as
Y = α + βX + e
In this equation, Y is the dependent variable, and X is the independent variable. α is the intercept of the regression line, and β is the slope of the regression line. e is the random disturbance term.
The way to interpret the above equation is as follows:
Y = α + βX (ignoring the disturbance term “e”)
gives the average relationship between the values of Y and X.
For example, let Y be the cost of goods sold and X be the sales. If α = 2 and β = 0.75, and if the sales are 100, i.e., X = 100, the cost of goods sold would be, on average,
2 + 0.75(100) = 77. However, in any particular year when......
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