{ "cells": [ { "cell_type": "markdown", "metadata": {}, "source": [ "# Multiple Linear Regression\n", "\n", "Dataset: https://www.superdatascience.com/training/\n", "\n", "Author: Filipa C. S. Rodrigues (filipacsrodrigues@gmail.com)" ] }, { "cell_type": "markdown", "metadata": {}, "source": [ "##### Multiple Linear Regression:\n", "\n", "\\begin{align}\n", "{y}= b_0 + b_1x_1 + b_2x_2 + ... + b_nx_n\n", "\\end{align}\n" ] }, { "cell_type": "code", "execution_count": 1, "metadata": { "collapsed": false }, "outputs": [ { "name": "stderr", "output_type": "stream", "text": [ "/usr/local/lib/python2.7/site-packages/matplotlib/font_manager.py:273: UserWarning: Matplotlib is building the font cache using fc-list. This may take a moment.\n", " warnings.warn('Matplotlib is building the font cache using fc-list. This may take a moment.')\n" ] } ], "source": [ "%matplotlib inline \n", "import pandas\n", "import csv\n", "import numpy as np\n", "import statsmodels.api as sm\n", "import matplotlib.pyplot as plt" ] }, { "cell_type": "code", "execution_count": 2, "metadata": { "collapsed": false }, "outputs": [ { "data": { "text/html": [ "
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R&D SpendAdministrationMarketing SpendStateProfit
0165349.20136897.80471784.10New York192261.83
1162597.70151377.59443898.53California191792.06
2153441.51101145.55407934.54California191050.39
3144372.41118671.85383199.62New York182901.99
4142107.3491391.77366168.42California166187.94
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" ], "text/plain": [ " R&D Spend Administration Marketing Spend State Profit\n", "0 165349.20 136897.80 471784.10 New York 192261.83\n", "1 162597.70 151377.59 443898.53 California 191792.06\n", "2 153441.51 101145.55 407934.54 California 191050.39\n", "3 144372.41 118671.85 383199.62 New York 182901.99\n", "4 142107.34 91391.77 366168.42 California 166187.94" ] }, "execution_count": 2, "metadata": {}, "output_type": "execute_result" } ], "source": [ "df = pandas.DataFrame.from_csv('50-Startups.csv', index_col=None)\n", "df[:5]" ] }, { "cell_type": "markdown", "metadata": {}, "source": [ "#### Variables\n", "\n", "- Profit: dependent variable (y)\n", "- R&D Spend, Administration, Marketing Spend: numeric independent variables (x)\n", "- State: categorical independet variable (x)" ] }, { "cell_type": "code", "execution_count": 3, "metadata": { "collapsed": false }, "outputs": [], "source": [ "df_y = df['Profit']\n", "df_x = df.drop(['Profit'], axis = 1)" ] }, { "cell_type": "markdown", "metadata": {}, "source": [ "Create dummy variable for the categorical variable:" ] }, { "cell_type": "code", "execution_count": 4, "metadata": { "collapsed": false }, "outputs": [ { "data": { "text/html": [ "
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CaliforniaNew YorkR&D SpendAdministrationMarketing SpendState
001165349.20136897.80471784.10New York
110162597.70151377.59443898.53California
210153441.51101145.55407934.54California
301144372.41118671.85383199.62New York
410142107.3491391.77366168.42California
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" ], "text/plain": [ " California New York R&D Spend Administration Marketing Spend \\\n", "0 0 1 165349.20 136897.80 471784.10 \n", "1 1 0 162597.70 151377.59 443898.53 \n", "2 1 0 153441.51 101145.55 407934.54 \n", "3 0 1 144372.41 118671.85 383199.62 \n", "4 1 0 142107.34 91391.77 366168.42 \n", "\n", " State \n", "0 New York \n", "1 California \n", "2 California \n", "3 New York \n", "4 California " ] }, "execution_count": 4, "metadata": {}, "output_type": "execute_result" } ], "source": [ "dummy = pandas.get_dummies(df_x['State'])\n", "df_x = dummy.join(df_x)\n", "df_x[:5]" ] }, { "cell_type": "markdown", "metadata": {}, "source": [ "Only one dummy variable should be used to avoid the \"dummy variable trap\":" ] }, { "cell_type": "code", "execution_count": 5, "metadata": { "collapsed": false }, "outputs": [ { "data": { "text/html": [ "
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New YorkR&D SpendAdministrationMarketing Spend
01165349.20136897.80471784.10
10162597.70151377.59443898.53
20153441.51101145.55407934.54
31144372.41118671.85383199.62
40142107.3491391.77366168.42
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" ], "text/plain": [ " New York R&D Spend Administration Marketing Spend\n", "0 1 165349.20 136897.80 471784.10\n", "1 0 162597.70 151377.59 443898.53\n", "2 0 153441.51 101145.55 407934.54\n", "3 1 144372.41 118671.85 383199.62\n", "4 0 142107.34 91391.77 366168.42" ] }, "execution_count": 5, "metadata": {}, "output_type": "execute_result" } ], "source": [ "df_x = df_x.drop(['California', 'State'], axis =1)\n", "df_x[:5]" ] }, { "cell_type": "markdown", "metadata": {}, "source": [ "#### Backward Elimination \n", "\n", "Use Backward Elimination to find the most important features.\n", "\n", "Steps:\n", "\n", "1. Select a significance level (SL) to keep the variables in the model.\n", "2. Fit the full model with all possible predictors.\n", "3. Consider the predictor with the higher p-value. If p-value > SL, go to step 4. Otherwise go to step 6.\n", "4. Remove the predictor.\n", "5. Fit model without this variable.\n", "6. The model is ready" ] }, { "cell_type": "markdown", "metadata": {}, "source": [ " - Apply ordinary least squares (OLS) Regression\n", " \n", "SL = 0.05" ] }, { "cell_type": "markdown", "metadata": {}, "source": [ "Add a constant \\begin{align} b_0 \\end{align} to the model:" ] }, { "cell_type": "code", "execution_count": 6, "metadata": { "collapsed": false }, "outputs": [ { "data": { "text/html": [ "
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constNew YorkR&D SpendAdministrationMarketing Spend
011165349.2136897.80471784.10
110162597.7151377.59443898.53
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" ], "text/plain": [ " const New York R&D Spend Administration Marketing Spend\n", "0 1 1 165349.2 136897.80 471784.10\n", "1 1 0 162597.7 151377.59 443898.53" ] }, "execution_count": 6, "metadata": {}, "output_type": "execute_result" } ], "source": [ "df_x = sm.add_constant(df_x)\n", "df_x[:2]" ] }, { "cell_type": "markdown", "metadata": {}, "source": [ "Create a model with all variables:" ] }, { "cell_type": "code", "execution_count": 7, "metadata": { "collapsed": false }, "outputs": [ { "name": "stdout", "output_type": "stream", "text": [ " OLS Regression Results \n", "==============================================================================\n", "Dep. Variable: Profit R-squared: 0.951\n", "Model: OLS Adj. R-squared: 0.947\n", "Method: Least Squares F-statistic: 218.4\n", "Date: Thu, 22 Dec 2016 Prob (F-statistic): 7.53e-29\n", "Time: 11:28:30 Log-Likelihood: -525.25\n", "No. Observations: 50 AIC: 1060.\n", "Df Residuals: 45 BIC: 1070.\n", "Df Model: 4 \n", "Covariance Type: nonrobust \n", "===================================================================================\n", " coef std err t P>|t| [95.0% Conf. Int.]\n", "-----------------------------------------------------------------------------------\n", "const 5.042e+04 6653.545 7.577 0.000 3.7e+04 6.38e+04\n", "New York -1332.0930 2690.180 -0.495 0.623 -6750.393 4086.207\n", "R&D Spend 0.8080 0.046 17.662 0.000 0.716 0.900\n", "Administration -0.0236 0.052 -0.455 0.651 -0.128 0.081\n", "Marketing Spend 0.0264 0.017 1.581 0.121 -0.007 0.060\n", "==============================================================================\n", "Omnibus: 15.851 Durbin-Watson: 1.306\n", "Prob(Omnibus): 0.000 Jarque-Bera (JB): 25.631\n", "Skew: -0.951 Prob(JB): 2.72e-06\n", "Kurtosis: 5.947 Cond. No. 1.41e+06\n", "==============================================================================\n", "\n", "Warnings:\n", "[1] Standard Errors assume that the covariance matrix of the errors is correctly specified.\n", "[2] The condition number is large, 1.41e+06. This might indicate that there are\n", "strong multicollinearity or other numerical problems.\n" ] } ], "source": [ "model1 = sm.OLS(df_y, df_x).fit()\n", "print model1.summary()" ] }, { "cell_type": "markdown", "metadata": {}, "source": [ "As one can observe, the variable with the largest p-value is the \"Administration\" -> p-value = 0.651 >> 0.05\n", "\n", "Let's see the relationship of this variable with the \"Profit\":" ] }, { "cell_type": "code", "execution_count": 8, "metadata": { "collapsed": false }, "outputs": [ { "data": { "image/png": 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u/EfAXW79dLwxLfDu0zVAN996URz71Mgtxo0bl9U6Jk6cofCZgrqlVuEnvrLP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\nYP6m9Vx0zJjAhWrHjh0Z7b6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"text/plain": [ "" ] }, "metadata": {}, "output_type": "display_data" } ], "source": [ "fig = sm.graphics.plot_fit(model1, 3)" ] }, { "cell_type": "markdown", "metadata": {}, "source": [ "It does not seem to exist a relationship between Profit and Administration. \n", "\n", "Let's discard this variable:" ] }, { "cell_type": "code", "execution_count": 9, "metadata": { "collapsed": false }, "outputs": [ { "name": "stdout", "output_type": "stream", "text": [ " OLS Regression Results \n", "==============================================================================\n", "Dep. Variable: Profit R-squared: 0.951\n", "Model: OLS Adj. R-squared: 0.948\n", "Method: Least Squares F-statistic: 296.2\n", "Date: Thu, 22 Dec 2016 Prob (F-statistic): 4.44e-30\n", "Time: 11:28:34 Log-Likelihood: -525.36\n", "No. Observations: 50 AIC: 1059.\n", "Df Residuals: 46 BIC: 1066.\n", "Df Model: 3 \n", "Covariance Type: nonrobust \n", "===================================================================================\n", " coef std err t P>|t| [95.0% Conf. Int.]\n", "-----------------------------------------------------------------------------------\n", "const 4.772e+04 3018.340 15.811 0.000 4.16e+04 5.38e+04\n", "New York -1484.6097 2646.166 -0.561 0.577 -6811.065 3841.846\n", "R&D Spend 0.8003 0.042 18.976 0.000 0.715 0.885\n", "Marketing Spend 0.0286 0.016 1.809 0.077 -0.003 0.060\n", "==============================================================================\n", "Omnibus: 15.844 Durbin-Watson: 1.291\n", "Prob(Omnibus): 0.000 Jarque-Bera (JB): 25.957\n", "Skew: -0.943 Prob(JB): 2.31e-06\n", "Kurtosis: 5.984 Cond. No. 6.73e+05\n", "==============================================================================\n", "\n", "Warnings:\n", "[1] Standard Errors assume that the covariance matrix of the errors is correctly specified.\n", "[2] The condition number is large, 6.73e+05. This might indicate that there are\n", "strong multicollinearity or other numerical problems.\n" ] } ], "source": [ "model2 = sm.OLS(df_y, df_x.drop(['Administration'], axis = 1)).fit()\n", "print model2.summary()" ] }, { "cell_type": "markdown", "metadata": {}, "source": [ "Now, the variable with the highest p-value is \"New York\" that has a p-value of 0.577, which is much grater than the significance level 0.05. \n", "\n", "Let's see the relationship of this variable with the Profit:" ] }, { "cell_type": "code", "execution_count": 10, "metadata": { "collapsed": false }, "outputs": [ { "data": { "image/png": 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"text/plain": [ "" ] }, "metadata": {}, "output_type": "display_data" } ], "source": [ "fig = sm.graphics.plot_fit(model2, 1)" ] }, { "cell_type": "markdown", "metadata": {}, "source": [ "Being New York (1) or California (0) does not seem to affect the Profit. So we can conclude that the variable \"New York\" does not bring any value to the model and it can be discarded." ] }, { "cell_type": "code", "execution_count": 11, "metadata": { "collapsed": false }, "outputs": [ { "name": "stdout", "output_type": "stream", "text": [ " OLS Regression Results \n", "==============================================================================\n", "Dep. Variable: Profit R-squared: 0.950\n", "Model: OLS Adj. R-squared: 0.948\n", "Method: Least Squares F-statistic: 450.8\n", "Date: Thu, 22 Dec 2016 Prob (F-statistic): 2.16e-31\n", "Time: 11:28:44 Log-Likelihood: -525.54\n", "No. Observations: 50 AIC: 1057.\n", "Df Residuals: 47 BIC: 1063.\n", "Df Model: 2 \n", "Covariance Type: nonrobust \n", "===================================================================================\n", " coef std err t P>|t| [95.0% Conf. Int.]\n", "-----------------------------------------------------------------------------------\n", "const 4.698e+04 2689.933 17.464 0.000 4.16e+04 5.24e+04\n", "R&D Spend 0.7966 0.041 19.266 0.000 0.713 0.880\n", "Marketing Spend 0.0299 0.016 1.927 0.060 -0.001 0.061\n", "==============================================================================\n", "Omnibus: 14.677 Durbin-Watson: 1.257\n", "Prob(Omnibus): 0.001 Jarque-Bera (JB): 21.161\n", "Skew: -0.939 Prob(JB): 2.54e-05\n", "Kurtosis: 5.575 Cond. No. 5.32e+05\n", "==============================================================================\n", "\n", "Warnings:\n", "[1] Standard Errors assume that the covariance matrix of the errors is correctly specified.\n", "[2] The condition number is large, 5.32e+05. This might indicate that there are\n", "strong multicollinearity or other numerical problems.\n" ] } ], "source": [ "model3 = sm.OLS(df_y, df_x.drop(['Administration', 'New York'], axis = 1)).fit()\n", "print model3.summary()" ] }, { "cell_type": "markdown", "metadata": {}, "source": [ "Now, the variable with the highest p-value is \"Marketing Spend\", but the value \"0.06\" is very close to the significance level \"0.05\".\n", "\n", "Let's see the relationship with \"Profit\":" ] }, { "cell_type": "code", "execution_count": 12, "metadata": { "collapsed": false }, "outputs": [ { "data": { "image/png": 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LC6/V8vLKRGcpKSxbtuyAtqurq9MZeXlaDjojL0/r6upUVXXChAlRy2M4gWPX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\nVfUlmneLOQuvkzDu79lu+Xv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"text/plain": [ "" ] }, "metadata": {}, "output_type": "display_data" } ], "source": [ "fig = sm.graphics.plot_fit(model3, 2)" ] }, { "cell_type": "markdown", "metadata": {}, "source": [ "It seems to exist some kind of relationship between the two variables.\n", "\n", "Let's see what happens if this variable is not included in the model:" ] }, { "cell_type": "code", "execution_count": 13, "metadata": { "collapsed": false }, "outputs": [ { "name": "stdout", "output_type": "stream", "text": [ " OLS Regression Results \n", "==============================================================================\n", "Dep. Variable: Profit R-squared: 0.947\n", "Model: OLS Adj. R-squared: 0.945\n", "Method: Least Squares F-statistic: 849.8\n", "Date: Thu, 22 Dec 2016 Prob (F-statistic): 3.50e-32\n", "Time: 11:28:56 Log-Likelihood: -527.44\n", "No. Observations: 50 AIC: 1059.\n", "Df Residuals: 48 BIC: 1063.\n", "Df Model: 1 \n", "Covariance Type: nonrobust \n", "==============================================================================\n", " coef std err t P>|t| [95.0% Conf. Int.]\n", "------------------------------------------------------------------------------\n", "const 4.903e+04 2537.897 19.320 0.000 4.39e+04 5.41e+04\n", "R&D Spend 0.8543 0.029 29.151 0.000 0.795 0.913\n", "==============================================================================\n", "Omnibus: 13.727 Durbin-Watson: 1.116\n", "Prob(Omnibus): 0.001 Jarque-Bera (JB): 18.536\n", "Skew: -0.911 Prob(JB): 9.44e-05\n", "Kurtosis: 5.361 Cond. No. 1.65e+05\n", "==============================================================================\n", "\n", "Warnings:\n", "[1] Standard Errors assume that the covariance matrix of the errors is correctly specified.\n", "[2] The condition number is large, 1.65e+05. This might indicate that there are\n", "strong multicollinearity or other numerical problems.\n" ] } ], "source": [ "model4 = sm.OLS(df_y, df_x.drop(['Administration', 'New York', 'Marketing Spend'], axis = 1)).fit()\n", "print model4.summary()" ] }, { "cell_type": "markdown", "metadata": {}, "source": [ "The Adjusted R-squared in the model3, that contains the \"R&D Spend\" and the \"Marketing Spend\" variables is: 0.948\n", "\n", "The Adjusted R-squared in the model4, that contains only the \"R&D Spend\" variable is: 0.945\n", "\n", "Hence, when both variables are used, the value of the Adjusted R-squared is larger which means the model is better. \n", "So the \"Marketing Spend\" should be mantained in the model." ] }, { "cell_type": "code", "execution_count": null, "metadata": { "collapsed": true }, "outputs": [], "source": [] } ], "metadata": { "hide_input": true, "kernelspec": { "display_name": "Python 2", "language": "python", "name": "python2" }, "language_info": { "codemirror_mode": { "name": "ipython", "version": 2 }, "file_extension": ".py", "mimetype": "text/x-python", "name": "python", "nbconvert_exporter": "python", "pygments_lexer": "ipython2", "version": "2.7.9" } }, "nbformat": 4, "nbformat_minor": 0 }