Least Squares

AAA

DEFINITION of 'Least Squares'

A statistical method used to determine a line of best fit by minimizing the sum of squares created by a mathematical function. A "square" is determined by squaring the distance between a data point and the regression line. The least squares approach limits the distance between a function and the data points that a function is trying to explain. It is used in regression analysis, often in nonlinear regression modeling in which a curve is fit into a set of data.

INVESTOPEDIA EXPLAINS 'Least Squares'

The least squares approach is a popular method for determining regression equations. Instead of trying to solve an equation exactly, mathematicians use the least squares to make a close approximation (referred to as a maximum-likelihood estimate). Modeling methods that are often used when fitting a function to a curve include the straight line method, polynomial method, logarithmic method and Gaussian method.

RELATED TERMS
  1. Sum Of Squares

    A statistical technique used in regression analysis. The sum ...
  2. Residual Sum Of Squares - RSS

    A statistical technique used to measure the amount of variance ...
  3. Stepwise Regression

    The step-by-step iterative construction of a regression model ...
  4. Autoregressive

    A stochastic process used in statistical calculations in which ...
  5. Regression

    A statistical measure that attempts to determine the strength ...
  6. Statistics

    A type of mathematical analysis involving the use of quantified ...
Related Articles
  1. To measure the risk of a particular equity, many investors turn to beta.
    Investing Basics

    Calculating Beta: Portfolio Math For ...

  2. Investing Basics

    Regression Basics For Business Analysis

  3. Options & Futures

    Bettering Your Portfolio With Alpha ...

  4. Mutual Funds & ETFs

    Analyzing Mutual Funds For Maximum Return

Hot Definitions
  1. Capitulation

    When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  4. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  5. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  6. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
Trading Center