![]() ![]() Here is the spreadsheet with this data, in case you wish to see how this graph was built.Ī regression model expresses a ‘dependent’ variable as a function of one or more ‘independent’ variables, generally in the form: This is a scatter plot of Novartis’s returns plotted against the S&P 500’s returns (data downloaded from Yahoo finance). That provides a visual representation of the data.Ĭonsider the figure below. How do you figure out how related they are? And what can you do with the data in a practical sense? The first thing to do is to create a scatter plot. ![]() Imagine you have data on a stock’s daily return and the market’s daily return in a spreadsheet, and you know instinctively that they are related. ![]() We will also look at how regression is connected to beta and correlation. In particular, we will look at the different variables such as p-value, t-stat and other output provided by regression analysis in Excel. We will discuss understanding regression in an intuitive sense, and also about how to practically interpret the output of a regression analysis. This article provides an overview of linear regression, and more importantly, how to interpret the results provided by linear regression. It is also used extensively in the application of data mining techniques. Linear regression is an important concept in finance and practically all forms of research.
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