This article discusses the basics of linear regression and its implementation in Python programming language.

**Linear regression** is a statistical approach for modelling relationship between a dependent variable with a given set of independent variables.

**Note:** In this article, we refer dependent variables as **response** and independent variables as **features** for simplicity.

In order to provide a basic understanding of linear regression, we start with the most basic version of linear regression, i.e. **Simple linear regression**.

## Simple Linear Regression

Simple linear regression is an approach for predicting a **response** using a **single feature**.

It is assumed that the two variables are linearly related. Hence, we try to find a linear function that predicts the response value(y) as accurately as possible as a function of the feature or independent variable(x).

Let us consider a dataset where we have a value of response y for every feature x:

For generality, we define:

x as **feature vector**, i.e ,

y as **response vector**, i.e

for **n** observations (in above example, n=10).

A scatter plot of above dataset looks like:-

Now, the task is to find a **line which fits best** in above scatter plot so that we can predict the response for any new feature values. (i.e a value of x not present in dataset)

This line is called **regression line**.

The equation of regression line is represented as:

Here,

- represents the
**predicted response value**for observation. - and are regression coefficients and represent
**y-intercept**and**slope**of regression line respectively.

To create our model, we must “learn” or estimate the values of regression coefficients and . And once we’ve estimated these coefficients, we can use the model to predict responses!

In this article, we are going to use the **Least Squares technique**.

Now consider:

Here, is **residual error** in observation.

So, our aim is to minimize .

We define the squared error or cost function, J as:

and our task is to find the value of and for which is minimum!

Without going into the mathematical details, we present the result here:

where is the sum of cross-deviations of y and x:

and is the sum of squared deviations of x:

Note: The complete derivation for finding least squares estimates in simple linear regression can be found here.

Given below is the python implementation of above technique on our small dataset:

import numpy as np import matplotlib.pyplot as plt def estimate_coef(x, y): # number of observations/points n = np.size(x) # mean of x and y vector m_x, m_y = np.mean(x), np.mean(y) # calculating cross-deviation and deviation about x SS_xy = np.sum(y*x - n*m_y*m_x) SS_xx = np.sum(x*x - n*m_x*m_x) # calculating regression coefficients b_1 = SS_xy / SS_xx b_0 = m_y - b_1*m_x return(b_0, b_1) def plot_regression_line(x, y, b): # plotting the actual points as scatter plot plt.scatter(x, y, color = "m", marker = "o", s = 30) # predicted response vector y_pred = b[0] + b[1]*x # plotting the regression line plt.plot(x, y_pred, color = "g") # putting labels plt.xlabel('x') plt.ylabel('y') # function to show plot plt.show() def main(): # observations x = np.array([0, 1, 2, 3, 4, 5, 6, 7, 8, 9]) y = np.array([1, 3, 2, 5, 7, 8, 8, 9, 10, 12]) # estimating coefficients b = estimate_coef(x, y) print("Estimated coefficients:\nb_0 = {} \ \nb_1 = {}".format(b[0], b[1])) # plotting regression line plot_regression_line(x, y, b) if __name__ == "__main__": main()

Output of above piece of code is:

Estimated coefficients: b_0 = -0.0586206896552 b_1 = 1.45747126437

And graph obtained looks like this:

## Multiple linear regression

Multiple linear regression attempts to model the relationship between **two or more features** and a response by fitting a linear equation to observed data.

Clearly, it is nothing but an extension of Simple linear regression.

Consider a dataset with **p** features(or independent variables) and one response(or dependent variable).

Also, the dataset contains **n** rows/observations.

We define:

X (**feature matrix**) = a matrix of size **n X p** where denotes the values of feature for observation.

So,

and

y (**response vector**) = a vector of size **n** where denotes the value of response for observation.

The **regression line** for **p** features is represented as:

where is **predicted response value** for observation and are the **regression coefficients**.

Also, we can write:

where represents **residual error** in observation.

We can generalize our linear model a little bit more by representing feature matrix **X** as:

So now, the linear model can be expressed in terms of matrices as:

where,

and

Now, we determine **estimate of **, i.e. using **Least Squares method**.

As already explained, Least Squares method tends to determine for which is minimized.

We present the result directly here:

where represents the transpose of the matrix while represents the matrix inverse.

Knowing the least square estimates, , the multiple linear regression model can now be estimated as:

where is **estimated response vector**.

**Note:** The complete derivation for obtaining least square estimates in multiple linear regression can be found here.

Given below is the implementation of multiple linear regression technique on the Boston house pricing dataset dataset using Scikit-learn.

import matplotlib.pyplot as plt import numpy as np from sklearn import datasets, linear_model, metrics # load the boston dataset boston = datasets.load_boston(return_X_y=False) # defining feature matrix(X) and response vector(y) X = boston.data y = boston.target # splitting X and y into training and testing sets from sklearn.model_selection import train_test_split X_train, X_test, y_train, y_test = train_test_split(X, y, test_size=0.4, random_state=1) # create linear regression object reg = linear_model.LinearRegression() # train the model using the training sets reg.fit(X_train, y_train) # regression coefficients print('Coefficients: \n', reg.coef_) # variance score: 1 means perfect prediction print('Variance score: {}'.format(reg.score(X_test, y_test))) # plot for residual error ## setting plot style plt.style.use('fivethirtyeight') ## plotting residual errors in training data plt.scatter(reg.predict(X_train), reg.predict(X_train) - y_train, color = "green", s = 10, label = 'Train data') ## plotting residual errors in test data plt.scatter(reg.predict(X_test), reg.predict(X_test) - y_test, color = "blue", s = 10, label = 'Test data') ## plotting line for zero residual error plt.hlines(y = 0, xmin = 0, xmax = 50, linewidth = 2) ## plotting legend plt.legend(loc = 'upper right') ## plot title plt.title("Residual errors") ## function to show plot plt.show()

Click here for Scikit-learn tutorial

Output of above program looks like this:

Coefficients: [ -8.80740828e-02 6.72507352e-02 5.10280463e-02 2.18879172e+00 -1.72283734e+01 3.62985243e+00 2.13933641e-03 -1.36531300e+00 2.88788067e-01 -1.22618657e-02 -8.36014969e-01 9.53058061e-03 -5.05036163e-01] Variance score: 0.720898784611

and **Residual Error plot** looks like this:

In above example, we determine accuracy score using **Explained Variance Score**.

We define:

where is the estimated target output, the corresponding (correct) target output, and is Variance, the square of the standard deviation.

The best possible score is 1.0, lower values are worse.

## Assumptions

Given below are the basic assumptions that a linear regression model makes regarding a dataset on which it is applied:

**Linear relationship**: Relationship between response and feature variables should be linear. The linearity assumption can be tested using scatter plots. As shown below, 1st figure represents linearly related variables where as variables in 2nd and 3rd figure are most likely non-linear. So, 1st figure will give better predictions using linear regression.

**Little or no multi-collinearity**: It is assumed that there is little or no multicollinearity in the data. Multicollinearity occurs when the features (or independent variables) are not independent from each other.**Little or no auto-correlation**: Another assumption is that there is little or no autocorrelation in the data. Autocorrelation occurs when the residual errors are not independent from each other. You can refer here for more insight into this topic.**Homoscedasticity**: Homoscedasticity describes a situation in which the error term (that is, the “noise” or random disturbance in the relationship between the independent variables and the dependent variable) is the same across all values of the independent variables. As shown below, figure 1 has homoscedasticity while figure 2 has heteroscedasticity.

As we reach to the end of this article, we discuss some applications of linear regression below.

## Applications:

**1. Trend lines:** A trend line represents the variation in some quantitative data with passage of time (like GDP, oil prices, etc.). These trends usually follow a linear relationship. Hence, linear regression can be applied to predict future values. However, this method suffers from a lack of scientific validity in cases where other potential changes can affect the data.

**2. Economics:** Linear regression is the predominant empirical tool in economics. For example, it is used to predict consumption spending, fixed investment spending, inventory investment, purchases of a country’s exports, spending on imports, the demand to hold liquid assets, labor demand, and labor supply.

**3. Finance:** Capital price asset model uses linear regression to analyze and quantify the systematic risks of an investment.

**4. Biology:** Linear regression is used to model causal relationships between parameters in biological systems.