Explore the downside of using a univariate model and how to avoid jumping to conclusions.
- Did you know that the sales of ice cream increase…as the number of shark attacks do?…If we map this on a scatter plot, we would see a trend…with a positive slope.…One that most likely can be fitted with a linear regression.…Does that mean that these two things are directly related?…Does one cause the other?…No, of course not.…As the old saying goes, correlation isn't the same…as causation.…Just 'cause two variables are correlated,…doesn't mean that one effects the other.…
In other words, that R square value…doesn't tell the full story.…Let's think about those sharks and ice cream cones again.…It seems that these things are correlated according…to our graph, but that doesn't mean that one…causes the other.…There is a hidden story here.…This hidden story is often referred to as a hidden variable.…A hidden variable is one that's correlated…with each of the two variables on the graph.…These two variables in this case are the number…of shark attacks and the number of ice cream sales.…
They're not fundamentally related to one another.…
- The four different types of financial statements
- Moving averages
- Seasonally adjusted trends
- Pro forma statements
- Sales forecasting
- Forecasting expenses
- Projecting cash flow
- Regression analysis
Skill Level Intermediate
Finance Foundations: Business Valuationwith Jim Stice1h 49m Appropriate for all
1. Finance Basics
2. Simple Financial Forecasting
3. Pro Forma Financial Statements
4. Projecting Cash Flows
5. Introduction to Regression Analysis
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