We will use pandas DataFrame to capture the above data in Python. Before we dive into the Python code, make sure that both the statsmodels and pandas ...SkiptocontentInthisguide,I’llshowyouhowtoperformlinearregressioninPythonusingstatsmodels. I’lluseasimpleexampleaboutthestockmarkettodemonstratethisconcept.Herearethetopicstobecovered:BackgroundaboutlinearregressionReviewofanexamplewiththefulldatasetReviewofthePythoncodeInterpretationoftheregressionresultsMakingpredictionsbasedontheregressionresultsAboutLinearRegressionLinearregressionisusedasapredictivemodelthatassumesalinearrelationshipbetweenthe dependentvariable(whichisthevariablewearetryingtopredict/estimate)andtheindependentvariable/s(input variable/susedintheprediction).UnderSimpleLinearRegression,only oneindependent/inputvariableisusedtopredictthedependentvariable.Ithasthefollowingstructure:Y=C+M*XY=Dependentvariable(output/outcome/prediction/estimation)C=Constant(Y-Intercept)M=Slopeoftheregressionline(theeffectthatXhasonY)X=Independentvariable(inputvariableusedinthepredictionofY)Inreality,arelationshipmayexistbetweenthedependentvariableand multipleindependentvariables.Forthesetypesofmodels(assuminglinearity),wecanuseMultipleLinearRegressionwiththefollowingstructure:Y=C+M1*X1+M2*X2+…AnExample(withtheDatasettobeused)Forillustrationpurposes,let’ssupposethatyouhaveafictitiouseconomywiththefollowingparameters:Thegoalhereistopredict/estimatethestockindexpricebasedontwomacroeconomicsvariables:theinterestrateandtheunemploymentrate.WewillusepandasDataFrametocapturetheabovedatainPython. BeforewediveintothePythoncode,makesurethatboththe statsmodels andpandaspackagesareinstalled.YoumayusethePIPmethodtoinstallthosepackages.ThePythonCodeusingStatsmodelsThefollowingPythoncodeincludesanexampleofMultipleLinearRegression,wheretheinputvariablesare:Interest_RateUnemployment_RateThesetwovariablesareusedinthepredictionofthedependentvariableofStock_Index_Price.HereisthecompletesyntaxtoperformthelinearregressioninPythonusingstatsmo