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Module 6
Correlation
( Lecture 28-29)
Line Fitting
( Lectures 30-31)
Time Series and Exponential Smoothing
( Lectures 32-33)
LECTURE 28
Review Lecture 27
Measures of Dispersion
Correlation
Part 1
Variance
X
2
For the Population:
i
N
2
For the Sample: X i X
s 2
n 1
For the Population: use N in the For the Sample : use n - 1 in
denominator. the denominator.
Standard Deviation
N
X i X
For the Sample: 2
s
n 1
X i X
2
For the Sample : use n - 1
s in the denominator.
n1
Data: X i : 10 12 14 15 17 18 18 24
s= (10 16) 2 (12 16) 2 (14 16) 2 (15 16) 2 (17 16) 2 (18 16) 2 (24 16) 2
81
= 4.2426
Comparing Standard Deviations
Xi :
Data : 10 12 14 15 17 18 18
24 N= 8 Mean =16
X
2
i X
s 4.2426
n 1
X
2
i
3.9686
N
Value for the Standard Deviation is larger for data considered
as a Sample.
Comparing Standard Deviations
Data A
Mean = 15.5
11 12 13 14 15 16 17 18 19 20 21
s = 3.338
Data B
Mean = 15.5
11 12 13 14 15 16 17 18 19 20 21 s = .9258
Data C
Mean = 15.5
s = 4.57
11 12 13 14 15 16 17 18 19 20 21
Coefficient of Variation
S
CV 100%
X
Comparing Coefficient of Variation
Coefficient of Variation:
S
CV 100% Stock A: CV = 10%
X Stock B: CV = 5%
Shape
Y
80
60
40
20
X
0
0 20 40 60
Types of Regression Models
Yi X i i
Dependent
(Response Population Independent
) Variable Regression (Explanatory)
Line Variable
Population Linear Regression
(continued)
Y Yi X i i
Observed
Value
i = Random Error
YX X i
X
Observed Value
Sample Linear Regression
Sample
b0 provides an estimate of Regression
Y
b1 provides an estimate of
Line
Sample Linear Regression
(continued)
Yi b0 b1 X i ei Yi X i i
Y b1
i
ei
YX X i
Y i b0 b1 X i
b0 X
Observed Value
Simple Linear Regression
Equation: Example
Annual
Store Square Sales
Feet (1000)
1 1,726 3,681
You wish to examine the
2 1,542 3,395
relationship between the
square footage of produce 3 2,816 6,653
stores and their annual 4 5,555 9,543
sales. Sample data for 7 5 1,292 3,318
stores were obtained. Find 6 2,208 5,563
the equation of the straight
7 1,313 3,760
line that fits the data best
Scatter Diagram Example
12000
Annua l Sa le s ($000)
10000
8000
6000
4000
2000
0
0 1000 2000 3000 4000 5000 6000
S q u a re F e e t
Excel Output
Equation for Sample
Regression Line
Y i b0 b1 X i
1636 . 415 1 . 487 X i
10000
8000
6000
4000
2000
0
0 1000 2000 3000 4000 5000 6000
S q u a re F e e t
Interpreting the Results
Yi = 1636.415 +1.487Xi