Financial Risk Manager Part 1
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Assume that after constructing a multiple linear regression model, you find that R² = 0.97. How confident would you be in using the line of best fit for the purposes of prediction?
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NNikitesh
A
Not confident
B
Very confident
C
The relationship would be too weak to predict using a linear function
D
The relationship would be random and hence impossible to predict
Explanation:
R² = 0.97 means that 97% of the total variation in the dependent variable is explained by the independent variables in the regression model. This indicates a very strong relationship, and the regression line fits the data points extremely well, making it highly reliable for prediction purposes.
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