Financial Risk Manager Part 1
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What is the difference between regression analysis and correlation analysis?
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NNikitesh
A
Regression enables us to measure the association between two or more variables in specified units of the dependent variable
B
Regression enables us to establish a line of best fit through the data
C
With regression, we can predict the values of the dependent variable
D
All of the above
Explanation:
While correlation merely informs us of the existence of a linear relationship, regression analysis goes further to enable us to predict distinctive values of the dependent variable given distinctive values of the independent variable. The regression line is very useful in estimation and prediction.
Detailed Explanation:
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Correlation Analysis: Measures the strength and direction of the linear relationship between two variables. It gives a correlation coefficient (r) ranging from -1 to +1, but doesn't provide information about causality or allow for prediction.
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Regression Analysis:
- Option A: True - Regression measures association in specified units of the dependent variable (e.g., for every 1 unit increase in X, Y increases by b units)
- Option B: True - Regression establishes a line of best fit (regression line) through the data points
- Option C: True - Regression allows prediction of dependent variable values given independent variable values
Therefore, all three statements correctly describe advantages of regression over correlation, making D the correct answer.
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