Page 118 - Statistics II for Dummies

102 Part II: Using Different Types of Regression to Make Predictions

Checking the third condition
The third condition is that the residuals are independent; in other words,
they don’t affect each other. Looking at the lower-right plot on either Figure
5-4 or 5-5, you can see the residuals plotted by observation number, which is
the order in which the data came in the sample. If you see a pattern, you have
trouble; for example, if you were to connect the dots, so to speak, you might
see a pattern of a straight line, a curve, or any kind of predictable up or down
trend. You can see no patterns in the lower-right plots, so the independence
condition is met for the ads and plasma TV sales example.

If the data must be collected over time, such as stock prices over a ten-year
period, the independence condition may be a big problem because the data
from the previous time period may be related to the data from the next time
period. This kind of data requires time series analysis and is beyond the scope
of this book.

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