Linear Relationship

AAA

DEFINITION of 'Linear Relationship'

A statistical term used to describe the relationship between a variable and a constant. Linear relationships can be expressed in a graphical format where the variable and the constant are connected via a straight line or in a mathematical format where the independent variable is multiplied by the slope coefficient, added by a constant, which determines the dependent variable.

INVESTOPEDIA EXPLAINS 'Linear Relationship'

For example, assume that the independent variable is the size of a house (as measured by square footage), determines the market price of a home (the dependent variable), when it is multiplied by the slope coefficient of 207.65 and is then added to the constant term $10,500. If a home's square footage is 1,250 then the market value the home is $270,062.50. Graphically, and mathematically:

Linear Relationship



In this example, as the size of the house increases, the market value of the house increases in a linear fashion.

RELATED TERMS
  1. Nonlinearity

    A relationship which cannot be explained as a linear combination ...
  2. Least Squares Method

    A statistical technique to determine the line of best fit for ...
  3. Stepwise Regression

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

    A measure of the volatility, or systematic risk, of a security ...
  5. Regression

    A statistical measure that attempts to determine the strength ...
  6. Characteristic Line

    A line formed using regression analysis that summarizes a particular ...
Related Articles
  1. Mortgages: How Much Can You Afford?
    Budgeting

    Mortgages: How Much Can You Afford?

  2. What is the difference between a logarithmic ...
    Trading Strategies

    What is the difference between a logarithmic ...

  3. Mortgage Basics
    Credit & Loans

    Mortgage Basics

  4. Using Normal Distribution Formula To ...
    Investing Basics

    Using Normal Distribution Formula To ...

comments powered by Disqus
Hot Definitions
  1. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  2. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  3. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  4. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  5. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  6. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
Trading Center