Quant lvl 2 - Reading 9 Flashcards
define covariance
statistical measure of the degree to which the two variables move together
define correlation coefficient, “r”
measure of the strength of the linear relationship (correlation) between 2 variables
FORMULA: sample correlation coefficient
(cov of XY) / (stnd dev X)(stnd dev Y)
What are the 3 limitations of correlation analysis
- outliers, 2. spurious correlation (appearance of casual linear relationship when there is not one) 3. nonlinear relationships
FORMULA: t test for population correlation coefficient equals to zero
(r)(sq root n-2) / (sq root 1 - rsquared)
what test do you use fto test “whether the correlation between the population of two variables is equal to zero”
t-test
what is purpose of simple linear regression?
to explain the variation i dependent variable in terms of variation in single independent variable.
define dependent variable
variable whose variation is explained by independent variable. “explained variable” “predicted variable”
define independent variable
“explanatory variable”
what is the simple linear equation?
Y=bsub0 +bsub1Xsubi
define sum of squared erros, SSE
vertical distances between the estimated and actual Y-values
Define the standard error of estimate, SEE
measures the degree of variability of the actual Y-values relative to the estimated Y-values from a regression equation. (gauges the fit of the regression line)
define coefficient of determination, R-squared
% of total variation in dependent variable explained by the independent variable
what does s sub b1 represent?
the standard error of the regression coefficient
FORMULA: confidence interval
b sub 1 + or - (t critical X s sub b1
