# Advantages And Disadvantages Of Regression Analysis Pdf

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*The Marketing Mix does not take into account the unique elements of service marketing. If the number of observations is lesser than the number of features, Logistic Regression should not be used, otherwise, it may lead to overfitting. It is that framework or tool with the help of which a company analyze the external forces which can have an impact on the company which in turn will help a company to be prepared for any shock as well as an opportunity which these 6 factors provide.*

- The Advantages of Regression Analysis & Forecasting
- Multivariate Techniques: Advantages and Disadvantages
- advantages and disadvantages of regression analysis pdf
- advantages and disadvantages of linear regression analysis pdf

Regression analysis refers to a method of mathematically sorting out which variables may have an impact. The importance of regression analysis for a small business is that it helps determine which factors matter most, which it can ignore, and how those factors interact with each other. The importance of regression analysis lies in the fact that it provides a powerful statistical method that allows a business to examine the relationship between two or more variables of interest. The benefits of regression analysis are manifold: The regression method of forecasting is used for, as the name implies, forecasting and finding the causal relationship between variables.

## The Advantages of Regression Analysis & Forecasting

A linear regression model predicts the target as a weighted sum of the feature inputs. The linearity of the learned relationship makes the interpretation easy. Linear regression models have long been used by statisticians, computer scientists and other people who tackle quantitative problems. Linear models can be used to model the dependence of a regression target y on some features x. The learned relationships are linear and can be written for a single instance i as follows:.

The predicted outcome of an instance is a weighted sum of its p features. These errors are assumed to follow a Gaussian distribution, which means that we make errors in both negative and positive directions and make many small errors and few large errors. Various methods can be used to estimate the optimal weight. The ordinary least squares method is usually used to find the weights that minimize the squared differences between the actual and the estimated outcomes:.

We will not discuss in detail how the optimal weights can be found, but if you are interested, you can read chapter 3. The biggest advantage of linear regression models is linearity: It makes the estimation procedure simple and, most importantly, these linear equations have an easy to understand interpretation on a modular level i. This is one of the main reasons why the linear model and all similar models are so widespread in academic fields such as medicine, sociology, psychology, and many other quantitative research fields.

For example, in the medical field, it is not only important to predict the clinical outcome of a patient, but also to quantify the influence of the drug and at the same time take sex, age, and other features into account in an interpretable way. Estimated weights come with confidence intervals. A confidence interval is a range for the weight estimate that covers the "true" weight with a certain confidence. The interpretation of this interval would be: If we repeated the estimation times with newly sampled data, the confidence interval would include the true weight in 95 out of cases, given that the linear regression model is the correct model for the data.

Whether the model is the "correct" model depends on whether the relationships in the data meet certain assumptions, which are linearity, normality, homoscedasticity, independence, fixed features, and absence of multicollinearity. Linearity The linear regression model forces the prediction to be a linear combination of features, which is both its greatest strength and its greatest limitation.

Linearity leads to interpretable models. Linear effects are easy to quantify and describe. They are additive, so it is easy to separate the effects. If you suspect feature interactions or a nonlinear association of a feature with the target value, you can add interaction terms or use regression splines. Normality It is assumed that the target outcome given the features follows a normal distribution.

If this assumption is violated, the estimated confidence intervals of the feature weights are invalid. Homoscedasticity constant variance The variance of the error terms is assumed to be constant over the entire feature space.

Suppose you want to predict the value of a house given the living area in square meters. You estimate a linear model that assumes that, regardless of the size of the house, the error around the predicted response has the same variance.

This assumption is often violated in reality. In the house example, it is plausible that the variance of error terms around the predicted price is higher for larger houses, since prices are higher and there is more room for price fluctuations. Suppose the average error difference between predicted and actual price in your linear regression model is 50, Euros. If you assume homoscedasticity, you assume that the average error of 50, is the same for houses that cost 1 million and for houses that cost only 40, This is unreasonable because it would mean that we can expect negative house prices.

Independence It is assumed that each instance is independent of any other instance. If you perform repeated measurements, such as multiple blood tests per patient, the data points are not independent. For dependent data you need special linear regression models, such as mixed effect models or GEEs. If you use the "normal" linear regression model, you might draw wrong conclusions from the model. Fixed features The input features are considered "fixed".

Fixed means that they are treated as "given constants" and not as statistical variables. This implies that they are free of measurement errors.

This is a rather unrealistic assumption. Without that assumption, however, you would have to fit very complex measurement error models that account for the measurement errors of your input features. And usually you do not want to do that. Absence of multicollinearity You do not want strongly correlated features, because this messes up the estimation of the weights.

In a situation where two features are strongly correlated, it becomes problematic to estimate the weights because the feature effects are additive and it becomes indeterminable to which of the correlated features to attribute the effects.

The interpretation of a weight in the linear regression model depends on the type of the corresponding feature. The interpretation of the features in the linear regression model can be automated by using following text templates. Another important measurement for interpreting linear models is the R-squared measurement.

R-squared tells you how much of the total variance of your target outcome is explained by the model. The higher R-squared, the better your model explains the data. The formula for calculating R-squared is:. The SSE tells you how much variance remains after fitting the linear model, which is measured by the squared differences between the predicted and actual target values. SST is the total variance of the target outcome.

R-squared tells you how much of your variance can be explained by the linear model. R-squared ranges between 0 for models where the model does not explain the data at all and 1 for models that explain all of the variance in your data. There is a catch, because R-squared increases with the number of features in the model, even if they do not contain any information about the target value at all. Therefore, it is better to use the adjusted R-squared, which accounts for the number of features used in the model.

Its calculation is:. It is not meaningful to interpret a model with very low adjusted R-squared, because such a model basically does not explain much of the variance. Any interpretation of the weights would not be meaningful. The importance of a feature in a linear regression model can be measured by the absolute value of its t-statistic. The t-statistic is the estimated weight scaled with its standard error. Let us examine what this formula tells us: The importance of a feature increases with increasing weight.

This makes sense. This also makes sense. In this example, we use the linear regression model to predict the number of rented bikes on a particular day, given weather and calendar information.

For the interpretation, we examine the estimated regression weights. The features consist of numerical and categorical features. For each feature, the table shows the estimated weight, the standard error of the estimate SE , and the absolute value of the t-statistic t.

Interpretation of a numerical feature temperature : An increase of the temperature by 1 degree Celsius increases the predicted number of bicycles by Interpretation of a categorical feature "weathersit" : The estimated number of bicycles is When the weather is misty, the predicted number of bicycles is All the interpretations always come with the footnote that "all other features remain the same".

This is because of the nature of linear regression models. The predicted target is a linear combination of the weighted features. The weights specify the slope gradient of the hyperplane in each direction. The good side is that the additivity isolates the interpretation of an individual feature effect from all other features. On the bad side of things, the interpretation ignores the joint distribution of the features. Increasing one feature, but not changing another, can lead to unrealistic or at least unlikely data points.

For example increasing the number of rooms might be unrealistic without also increasing the size of a house. The information of the weight table weight and variance estimates can be visualized in a weight plot. The following plot shows the results from the previous linear regression model. Some confidence intervals are very short and the estimates are close to zero, yet the feature effects were statistically significant.

Temperature is one such candidate. The problem with the weight plot is that the features are measured on different scales. You can make the estimated weights more comparable by scaling the features zero mean and standard deviation of one before fitting the linear model. The weights of the linear regression model can be more meaningfully analyzed when they are multiplied by the actual feature values. The weights depend on the scale of the features and will be different if you have a feature that measures e.

The weight will change, but the actual effects in your data will not. It is also important to know the distribution of your feature in the data, because if you have a very low variance, it means that almost all instances have similar contribution from this feature.

The effect plot can help you understand how much the combination of weight and feature contributes to the predictions in your data. Start by calculating the effects, which is the weight per feature times the feature value of an instance:. The effects can be visualized with boxplots. The vertical line in the box is the median effect, i. The dots are outliers.

The categorical feature effects can be summarized in a single boxplot, compared to the weight plot, where each category has its own row. The largest contributions to the expected number of rented bicycles comes from the temperature feature and the days feature, which captures the trend of bike rentals over time. The temperature has a broad range of how much it contributes to the prediction.

The day trend feature goes from zero to large positive contributions, because the first day in the dataset This means that the effect increases with each day and is highest for the last day in the dataset

## Multivariate Techniques: Advantages and Disadvantages

Multiple regression is used to examine the relationship between several independent variables and a dependent variable. While multiple regression models allow you to analyze the relative influences of these independent, or predictor, variables on the dependent, or criterion, variable, these often complex data sets can lead to false conclusions if they aren't analyzed properly. A real estate agent could use multiple regression to analyze the value of houses. For example, she could use as independent variables the size of the houses, their ages, the number of bedrooms, the average home price in the neighborhood and the proximity to schools. Plotting these in a multiple regression model, she could then use these factors to see their relationship to the prices of the homes as the criterion variable.

The regression analysis as a statistical tool has a number of uses, or utilities for which it is widely used in various fields relating to almost all the natural, physical and social sciences. Despite the above utilities and usefulness, the technique of regression analysis suffers form the following serious limitations:. Live Chat. Utilities The regression analysis as a statistical tool has a number of uses, or utilities for which it is widely used in various fields relating to almost all the natural, physical and social sciences. It provides a measure of errors of estimates made through the regression line. A little scatter of the observed actual values around the relevant regression line indicates good estimates of the values of a variable, and less degree of errors involved therein. On the other hand, a great deal of scatter of the observed values around the relevant regression line indicates inaccurate estimates of the values of a variable and high degree of errors involved therein.

Post a comment. I am currently messing up with neural networks in deep learning. I am learning Python, TensorFlow and Keras. Author: I am an author of a book on deep learning. Quiz: I run an online quiz on machine learning and deep learning. Pages Home About me.

## advantages and disadvantages of regression analysis pdf

Regression is a typical supervised learning task. It is used in those cases where the value to be predicted is continuous. We train the system with many examples of cars, including both predictors and the corresponding price of the car labels. How do we choose the right Regression Model for a given problem?

The basic definition of multivariate analysis is a statistical method that measures relationships between two or more response variables. Multivariate techniques attempt to model reality where each situation, product or decision involves more than a single factor. For example, the decision to purchase a car may take into consideration price, safety features, color and functionality.

Regression analysis. When to use it 6. The advantages and disadvantages of a correlational research study help us to look for variables that seem to interact with each other.

* Ну, на самом деле. Все было совсем не. - Да вы не стесняйтесь, сеньор.*

### advantages and disadvantages of linear regression analysis pdf

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