Simple Linear Regression - Fitting The Regression Line

Fitting The Regression Line

Suppose there are n data points {yi, xi}, where i = 1, 2, …, n. The goal is to find the equation of the straight line

which would provide a "best" fit for the data points. Here the "best" will be understood as in the least-squares approach: such a line that minimizes the sum of squared residuals of the linear regression model. In other words, numbers α and β solve the following minimization problem:

By using either calculus, the geometry of inner product spaces or simply expanding to get a quadratic in α and β, it can be shown that the values of α and β that minimize the objective function Q are

\begin{align} \hat\beta & = \frac{ \sum_{i=1}^{n} (x_{i}-\bar{x})(y_{i}-\bar{y}) }{ \sum_{i=1}^{n} (x_{i}-\bar{x})^2 } = \frac{ \sum_{i=1}^{n}{x_{i}y_{i}} - \frac1n \sum_{i=1}^{n}{x_{i}}\sum_{j=1}^{n}{y_{j}}}{ \sum_{i=1}^{n}({x_{i}^2}) - \frac1n (\sum_{i=1}^{n}{x_{i}})^2 } \\ & = \frac{ \overline{xy} - \bar{x}\bar{y} }{ \overline{x^2} - \bar{x}^2 } = \frac{ \operatorname{Cov} }{ \operatorname{Var} } = r_{xy} \frac{s_y}{s_x}, \\ \hat\alpha & = \bar{y} - \hat\beta\,\bar{x}, \end{align}

where rxy is the sample correlation coefficient between x and y, sx is the standard deviation of x, and sy is correspondingly the standard deviation of y. Horizontal bar over a variable means the sample average of that variable. For example:

Substituting the above expressions for and into

yields

This shows the role plays in the regression line of standardized data points.

Read more about this topic:  Simple Linear Regression

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