Definition of Regression

Regression is a statistical tool to assess the relationship between the dependent variable and independent variables. In finance, the relationship between the prices of stock and the return rates on the stocks can be assessed by the regression models.

A regression model can incorporate a single independent variable or multiple independent variables at a time to assess their impact on the dependent variable. Regression can be used for a linear relationship between variables or non-linear relationships depending on the complexity of the model. Regression is also used to predict behaviors for example sales and GDP based on the validity of the historic data.