Multi-collinearity, Managerial Accounting

Assignment Help:

Multi-collinearity

Multiple regression analysis is based on the assumption that the independent variables are not correlated with each other, whenever the independent variables are highly correlated with each other then it is very difficult to isolate the effect of each one of these on the dependent variables. This occurs when there is a simultaneous movement of two or more independent variables in the same direction and almost at the same time. This condition is called multi-collinearity.

We can use the correlation matrix to determine whether 2 independent variables are highly correlated. If a correlation value of more than 0.8 exists between two independent variables, then the problem of multi-colinearity is bound to occur. Alternatively if the correlation coefficient between the two variables is greater than the multiple correlation coefficients, then multi-colinearity problem will occur. To remove the problem of multi-colinearlity, we drop one of the correlated variables. You can drop any of the variables.


Related Discussions:- Multi-collinearity

Costing and Budgetory Control, Given budgeted figures and actual, then anal...

Given budgeted figures and actual, then analyses each fixed cost into its components

Make or buy, The Rohr Company’s old equipment for making subassemblies is w...

The Rohr Company’s old equipment for making subassemblies is worn out. The company is considering two courses of action: (a) Completely replacing the old equipment with new equipme

Cash planning, Firms need cash to invest in inventory, receivables and fixe...

Firms need cash to invest in inventory, receivables and fixed assets and to create payments for operating expenses, so as to increase earnings and sales and make sure the smooth ru

Explain the interpretation of equity ratio, Interpretation of equity ratio ...

Interpretation of equity ratio As equity ratio show the relationship of owner funds to total assets higher the ratio or the share of the shareholders in the total capital of th

results of quality improvements, At the starting of the year, Asquith Comp...

At the starting of the year, Asquith Company Ltd initiated a quality improvement program. The program was successful in decreasing scrap and rework costs. To help assess the impact

What are the features of performance budgeting, What are the features of pe...

What are the features of performance budgeting The main features of performance budgeting are:  a)  Classification into functions activities or programmers.  b)  Specifyi

Value chain analysis , VALUE CHAIN ANALYSIS Every firm is a collection...

VALUE CHAIN ANALYSIS Every firm is a collection of activities that are executed to design, generate, market, deliver and support its products or services. Value chain analysis

CVP, What is cvp?

What is cvp?

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd