Linear regression, also known as simple linear regression or least squares regression, attempts to quantify the expected return for one asset given the return for another asset. The regression line defines the relationship between the expected return for a particular asset (defined as the dependent variable) and another asset (defined as the independent variable). The line passes through the average of both, with a slope that minimises residual errors.
Key learning objectives:
What is linear regression?
How do you construct a regression line?
How do you define the slope of the line?
Introduction to Options, Pricing and Use Cases
Peter Eisenhardt • 13:18