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1. Scatterplot of relationship between the three variables: Apple return, IBM return, Whole Market
return
Interpretation
2. Please find below the summary of model fit, ANOVA and Parameter estimates
Interpretation
1. R2 =21.6% and Radj = 21.1% represent weak regression model. It mean the model is able to explain on 21% of
the variation in apple returns with inputs of IBM returns and whole market stocks
2. F Ratio= 41.05. This represents that the overall model is signification and we can reject the Null Hypothesis
that all regression coefficients are zero. At least one of them is non-zero.
3. Regression Model: Apple Return = 0.0048217 + 1.316899(Whole market return) + 0.2275259(IBM Return)
4. Individually, Whole market return has p-value of <0.001 and IBM return has p-value of 0.0408 which are
statistically significant for 5% significance.
3. Residual versus Predicted Plot for apple return. As can be been seen from the below plot, the scatter
plot doesn’t appear to have any specific patter. Hence this is acceptable. Hence Homoskedasticity
assumption holds true.
Interpretation
4. We have been asked to calculate the 95% prediction interval of Apple return with 5% market return
and -2% IBM return.
First, we need to find the point prediction of Apple return corresponding to IBM and market
returns
As can be seen, the slopes of both regression models are not same. They are different between in
simple regression model, whole market return is also taking the impact of movement of the IBM
return and hence contribution of IBM returns is included in the simple regression model. However,
in Multiple regression, the impact of IBM return has been considered in its coefficient. This is the
reason of difference in the value of two slopes.
*Note – The numerical values have been calculated from the JMP Modelling earlier. I am not posting
graphs again to due to space constraints. Please refer to below schematic for the reference.
0.2275
IBM Return Apple Return
0.965
Market Return 1.3168