Regression

Loading the player...

What is 'Regression'

Regression is a statistical measure that attempts to determine the strength of the relationship between one dependent variable (usually denoted by Y) and a series of other changing variables (known as independent variables).

BREAKING DOWN 'Regression'

The two basic types of regression are linear regression and multiple regression. Linear regression uses one independent variable to explain and/or predict the outcome of Y, while multiple regression uses two or more independent variables to predict the outcome. The general form of each type of regression is:

Linear Regression: Y = a + bX + u
Multiple Regression: Y = a + b1X1 + b2X2 + B3X3 + ... + BtXt + u

Where:
Y= the variable that we are trying to predict
X= the variable that we are using to predict Y
a= the intercept
b= the slope
u= the regression residual.

In multiple regression the separate variables are differentiated by using subscripted numbers.

Regression takes a group of random variables, thought to be predicting Y, and tries to find a mathematical relationship between them. This relationship is typically in the form of a straight line (linear regression) that best approximates all the individual data points. Regression is often used to determine how much specific factors such as the price of a commodity, interest rates, particular industries or sectors influence the price movement of an asset.

RELATED TERMS
  1. Nonlinear Regression

    A form of regression analysis in which data is fit to a model ...
  2. Stepwise Regression

    The step-by-step iterative construction of a regression model ...
  3. Hedonic Regression

    A method used to determine the value of a good or service by ...
  4. Residual Sum Of Squares - RSS

    A statistical technique used to measure the amount of variance ...
  5. Variance Inflation Factor

    A measure of the amount of multicollinearity in a set of multiple ...
  6. Sum Of Squares

    A statistical technique used in regression analysis. The sum ...
Related Articles
  1. Economics

    Understanding Regression

    Regression is a statistical analysis that attempts to predict the effect of one or more variables on another variable.
  2. Professionals

    Regression Analysis

    CFA Level 1 - Regression Analysis
  3. Economics

    What's a Regressive Tax?

    A regressive tax is a levy in a tax system where the tax rate does not change based on the level of income.
  4. Active Trading

    The Linear Regression Of Time and Price

    This investment strategy can help investors be successful by identifying price trends while eliminating human bias.
  5. Fundamental Analysis

    Explaining Linear Relationships

    A linear relationship describes the proportionality between an independent variable and a dependent variable.
  6. Stock Analysis

    How to Pick the Best Stocks? Listen to Customers (AMZN, PZZA)

    Rated top in customer service, these companies have delivered impressive stock performance over the past year.
  7. Stock Analysis

    Consumer Defensive Stocks: Are These 2016's Best?

    These eight consumer defensive stocks meet strict objective parameters for top-tier investment potential in 2016.
  8. Investing

    Are High-Multiple Tech Stocks Winners or Losers?

    Are high-multiple tech stocks a good investment right now?
  9. The Impact of Competitive Factors on Prices and Costs

    As discussed detailed in earlier chapters, the Porter’s five forces affect the long-run profitability of an industry. These forces are the threat of new entrants, bargaining power of buyers, ...
  10. Professionals

    Correlation and Regression

    CFA Level 1 - Correlation and Regression
RELATED FAQS
  1. What are some of the more common types of regressions investors can use?

    Learn about the most common types of regressions investors use to model asset prices including linear regressions and multiple ... Read Answer >>
  2. What is the difference between linear regression and multiple regression?

    Learn the difference between linear regression and multiple regression and how multiple regression encompasses not only linear ... Read Answer >>
  3. How can I use a regression to see the correlation between prices and interest rates?

    Learn how to use linear regression to calculate the correlation between stock prices and interest rates by taking the square ... Read Answer >>
  4. How can I run linear and multiple regressions in Excel?

    Learn the steps involved in running a regression in Microsoft Excel: preparations, uploading data and using the regression ... Read Answer >>
  5. How can I run linear regressions in MATLAB?

    Learn how to run linear regressions in MATLAB by loading data, specifying dependent and independent variables and using the ... Read Answer >>
  6. In what types of economies are regressive taxes common?

    Understand the three main taxation systems, regressive, proportionate and progressive, and learn where regressive tax systems ... Read Answer >>
Hot Definitions
  1. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  2. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  3. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  4. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  5. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  6. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
Trading Center