Predicting values with regressions

- [Instructor] One of the most powerful tools…that we're going to be looking at using…in some of the algorithmic trading that we do later on…is what's called regression analysis.…Regression analysis is a business tool…that's used for predictions.…It's going to follow the basic formula…that you see on your screen here.…Y is equal to ax plus b,…where y is the variable that we're trying to predict,…x is some set of data that we've got,…and then a is what we call a coefficient.…It's the relationship between x and y,…and b…is some sort of base value,…otherwise called the y-intercept.…

Now, this type of simple formula is just the beginning.…Obviously, we're going to expand this over time,…and generally that's going to be done through a computer.…But it gives us the basis for the type of predictions…that our algorithms will be doing…when we're evaluating investment choices.…Now, our regression is going to predict…the dependent variable y…based on our set of independent variables x.…Essentially, what we're going here is a simple regression.…