Question

1) Discuss how the coefficient of correlation and coefficient of determination apply to analyzing the relationship in a business analysis.

2)Discuss each of the components in the regression equation: Y prime, intercept, slope, and the independent variable x, as they relate to making business predictions.

Need detail answer to the question

Answer 1

For linear regression in one independent variable

coefficient of determination is square of coefficient of correlation.

Coefficient of correlation is “R” value which is given in the summary table in the Regression output. R square is also called coefficient of determination. Multiply R times R to get the R square value. In other words Coefficient of Determination is the square of Coefficeint of Correlation.

R square or coeff. of determination shows percentage variation in y which is explained by all the x variables together. Higher the better. It is always between 0 and 1. It can never be negative – since it is a squared value

Coefficient of Correlation: is the degree of relationship between two variables say x and y. It can go between -1 and 1. 1 indicates that the two variables are moving in unison. They rise and fall together and have perfect correlation. -1 means that the two variables are in perfect opposites. One goes up and other goes down, in perfect negative way. Any two variables in this universe can be argued to have a correlation value. If they are not correlated then the correlation value can still be computed which would be 0. The correlation value always lies between -1 and 1 (going thru 0 – which means no correlation at all – perfectly not related). Correlation can be rightfully explalined for simple linear regression – because you only have one x and one y variable. For multiple linear regression R is computed, but then it is difficult to explain because we have multiple variables invovled here. Thats why R square is a better term. You can explain R square for both simple linear regressions and also for multiple linear regression