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Linear Regression Equations

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Linear Regression Equations
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Linear Regression Equations

Topic

Stock Market

Vocabulary

  • Linear Regression
  • Line of Best Fit
  • Linear Function
  • Correlation Coefficient
  • Coefficient of Determination

Student Exploration

How can the stock market information be represented with a linear regression equation?

The Dow Jones Industrial Average is a stock market index that provides a snap shot of what is happening in the United States stock market. The Dow Jones shows how 30 large, public owned companies in the U.S. have been traded, basically how well they are doing. The Dow Jones is the second oldest U.S. market index and is seen as a relatively reliable indicator of what is happening in the stock market. For more information visit, http://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average.

http://commons.wikimedia.org/wiki/File:Philippine-stock-market-board.jpg

You have probably heard the stock market described as “unpredictable,” however you can use linear regression (also referred to as the line of best fit) as a statistical tool to make the stock market more predictable! Go to Google Finance, google.com/finance, and examine the Dow Jones Industrial average at https://www.google.com/finance?client=ob&q=INDEXDJX:DJI.

Create a linear regression equation for today by clicking “1 d.” Then follow your cursor on the different points to track the different values over the course of the day, see the top right hand corner of the graphing screen for the values. Enter these values into your calculator to generate the linear regression equation, for more in-depth step-by-step instructions revisit the “read” tab for “Linear Regression Equations” on the CK-12 website.

What is the linear regression equation for today’s stock market?

Extension Investigation

  1. What is the slope for your linear regression equation? How does the slope relate to today’s stock market?
  2. What is the y-intercept for your linear regression equation? How does the y-intercept relate to today’s stock market?
  3. Use your calculator to find the correlation coefficient and coefficient of determination for the linear regression equation. What does your correlation coefficient tell you about the stock market today? What does your coefficient of determination tell you about the stock market today?
  4. How can you use linear regression equations to make more informed decision about investing in the stock market? Be specific.
  5. If you had a friend interested in buying stocks today, what would your recommendation be to them based on your investigation? Be specific.
  6. What kinds of data would not be good for creating a line of best fit? Explain and give an example of a situation that would cause the type of data you described.

Resources Cited

http://commons.wikimedia.org/wiki/File:Philippine-stock-market-board.jpg

Connections to other CK-12 Subject Areas

  • Line Graphs
  • Slope
  • Graphs of Linear Equations
  • Graphs of Linear Graphs
  • Applications of Linear Graphs
  • Slope-Intercept Form

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