regression analysis

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Seminole State College of Florida *

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Statistics

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Feb 20, 2024

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Describe what is Regression Analysis. how it is used in business to help managers with forecasting and inventory/operations decisions to support forecast. Discuss why the most common regression analysis is linear and whether regression analysis fits a deterministic or a stochastic model. Regression analysis is a statistical technique widely used in business in order to see a correlation between 2 or more variables. “You have your dependent variable (x) — the main factor that you’re trying to understand or predict. And then you have your independent variables (y)— the factors you suspect have an impact on your dependent variable” (Gallo, 2015). Y= x + bx error. It is important that managers make decisions with the best interest of the company in mind; which includes using statistical data and intuition. Regression analysis can be used in forecasting to study the visual relationship between data points to see a correlation. Regression analysis can also help with forecasting inventory needed or unneeded such as how long a product has been out and how many times it has sold in those days or weeks and so on. Regression analysis in statistics believed to be more of a stochastic model. This is because a stochastic model is built with equation whose variable is not determined completely by the other variable. Although 2 variables can be related in a deterministic way like in algebra, where x has a direct correlation to y, it is not used in statistics. This is because even though the dots correlate in a linear fashion in the real world there is always going to be some sort of error and intuition should always be used when reading theses graphs. Not every set of data used for regression analysis is going to give a linear correlation. Here is an example of a couple different regression analysis charts can looks like. R is the statistical measure the represents the proportion of variance. The closer it is to 1 or -1 the surer you can be that it will continue in that direction. The blue line through the chart is the regression line who’s purpose is to best fit within the data set.

A linear correlation shows a direct relationship between the x and y variables This is a direct relationship that has no errors so it can be deterministic. ever, so it Although there is always going to be some hint of error. For instance you got this many parts but 5 were damaged. There is error that is always present in regression analysis which is why it cannot be fully deterministic. but managers may be of some interest in a non-linear regression line. It can help predict sales in the near and long term, forecast financial statements, understand inventory levels, and make decisions. Gallo, A. (2015, November 4). A Refresher on Regression Analysis. Harvard Business Review. https://hbr.org/2015/11/a-refresher-on-regression-analysis In simple linear regression, if the response and explanatory variables have an exact relationship, then that relationship is deterministic. In other words, if you can predict with 100% certainty where a y-value is going to be based only on your x-value, then that’s a deterministic relationship.

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