## Motivation for Linear Regression

For this post, I will implement Linear Regression in Python from scratch. We will start with the fundamental assumptions and mathematical foundations, and work straight through to implementation in Python.

It is no secret that the past few years have seen a considerable rise in the interest in artificial intelligence and machine learning, much of it being fuelled by the developments in Deep Learning starting in the early 2000’s. This has caused simpler algorithms to be often overlooked by enthusiasts and beginners in the field.  However, for many practical applications it is these simple algorithms that often perform best, and are much more interpretable.  Here we’ll cover one of the simplest learning algorithms developed, linear regression. For any business application where a linear relationship exists between variables, this is a powerful technique for modelling the behaviour of the process, gaining insights, and generating predictions.

Initially developed in the early 19th by Adrien-Marie Legendre and Johann Carl Friedrich Gauss, linear regression is a statistical learning method by which a linear relationship is modelled between a response (y) and one or more independent variables (x).  The original formulation utilised the least squares estimation method, although other techniques have since been developed.  In the case of two or more independent variables, the algorithm is referred to as multiple linear regression.

In the following sections, I’ll review the mathematical assumptions, and then the derivation of the linear regression model with least squares estimation.  If you’re more interested in practical examples, just jump ahead to the next section where we will build a linear regression model in Python. are on the last page.

## Assumptions and Considerations

Here I will list the key assumptions behind the derivation of the linear regression algorithm:

• a linear model for continuous variables
• the population of errors have a mean of zero
• the independent variables are uncorrelated with the error
• there should be zero autocorrelation in the error
• the population of errors have constant variance
• the independent variables are not linearly correlated with one another
• the population of errors follows a normal distribution

## Derivation of the Linear Regression Algorithm

Mathematically, a linear regression model assumes the following relationship between independent variables and response:

y_{i} = \beta_{0} + \beta_{1}x_{i,1} + \beta_{2}x_{i,2} + … + \beta_{N}x_{i,N} + \epsilon_{i}    (1)

Where the index i ranges over all available data points i=1…T. In its most general form, there are N+1 model parameters \beta_{0}, \beta_{1}, … \beta_{N} for N independent variables. The \epsilon_{i} term indicates the error between the response and the linear combination of independent variables.

Our objective is to find optimal values for the parameters \beta_{0}, \beta_{1}, … \beta_{N}. We can facilitate this by rewriting equation (1) in matrix notation by considering the following:

\bold{y} = \begin{bmatrix} y_1 \\ y_2 \\ . \\ . \\ . \\ y_T \end{bmatrix}, \bold{\beta} = \begin{bmatrix} \beta_0 \\ \beta_1 \\ . \\ . \\ . \\ \beta_N \end{bmatrix}, \bold{X} = \begin{bmatrix} 1 & x_{1,1} & … & x_{1,N} \\ 1 & x_{2,1} & … & x_{2,N} \\ … & … & … & … \\ … & … & … & … \\ 1 & x_{T,1} & … & x_{T,N} \end{bmatrix}, \bold{\epsilon} = \begin{bmatrix} \epsilon_1 \\ \epsilon_2 \\ . \\ . \\ . \\ \epsilon_T \end{bmatrix}    (2)

\bold{y} = \bold{X}\bold{\beta} + \bold{\epsilon}    (3)

Note that (3) represents a matrix equation which encompasses all the available data for calculating \beta.

To determine \beta we’ll need to specify a loss function to optimise.  Here we will take advantage of the sum of squares error SSE:

SSE = \sum_{i=1}^{T} \epsilon_{i}^{2} = \bold{\epsilon}^{‘}\bold{\epsilon}    (4)

where the superscript indicates the transpose. Expanding out the matrix multiplication:

\bold{\epsilon}^{‘}\bold{\epsilon} = (\bold{y} – \bold{X}\bold{\beta})^{‘}(\bold{y} – \bold{X}\bold{\beta})

= \bold{y}^{‘}\bold{y} – \bold{y}^{‘}\bold{X}\bold{\beta} – (\bold{X}\bold{\beta})^{‘}\bold{y} + (\bold{X}\bold{\beta})^{‘}\bold{X}\bold{\beta}

Now let’s look closer at the second and third terms.  Both consist of the same set of variables, and the multiplication products have the dimensions of (1 \times T)(T \times N+1)( N+1 \times 1) = ( 1  \times 1) and ( 1 \times N+1 )( N+1 \times T )( T \times 1 ) = ( 1 \times 1 ) for the second and third terms, respectively.  Since these are scalars, we can determine (\bold{X}\bold{\beta})^{‘}\bold{y} = \bold{y}^{‘}\bold{X}\bold{\beta}:

= \bold{y}^{‘}\bold{y} – 2(\bold{X}\bold{\beta})^{‘}\bold{y} + (\bold{X}\bold{\beta})^{‘}\bold{X}\bold{\beta}
= \bold{y}^{‘}\bold{y} – 2\bold{\beta}^{‘}\bold{X}^{‘}\bold{y} + \bold{\beta}^{‘}\bold{X}^{‘}\bold{X}\bold{\beta}

To find optimal values for \beta, we need to take the derivative of the loss function and set it to zero:

\frac{\partial SSE}{\partial \bold{\beta}} = – 2\bold{X}^{‘}\bold{y} + 2\bold{X}^{‘}\bold{X}\bold{\beta} = 0

\bold{\beta} = (\bold{X}^{‘}\bold{X})^{-1}\bold{X}^{‘}\bold{y}    (5)

Equation (5) provides an analytical solution to the problem of fitting the model to the available data, and is the aforementioned least squares estimation method. The appeal of an analytical solution is the computational efficiency by which the model parameters can be found (as opposed to using an iterative optimisation method).

## Build and Test Linear Regression in Python

Will will begin our work by developing our own model, using the derivation outlined in the previous section.

### Build a Custom Linear Regression Model

Let’s start by generating a small dataset with a single independent variable in Python.  To do this, first I’ll need to import a few packages that will be used throughout the examples:

## imports ##
import numpy as np
import matplotlib.pyplot as plt
from sklearn.metrics import r2_score

Now I will generate the data with a linear relationship between the independent variable (x) and the response (y), along with a error component (\epsilon) that follows a normal distribution:

## generate some data ##
n  = 200
b0 = 50
b1 = 2
x  = np.array([i for i in range(n)])
y  = b0 + b1*x + np.random.normal(loc=0,scale=15,size=n)
x  = x.reshape(-1,1)
y  = y.reshape(-1,1)

In the code snippet above, I first define the the number of samples (n), the intercept term (b0), and the slope (b1).  The relationship between x, y, and \epsilon defined in the code above is:

y_i = 50 + 2x_i + \epsilon_i    (6)

where the error term is drawn from a normal distribution with mean 0 and standard deviation 15: \epsilon_i \sim N(0,15) , and the index i ranges from 0 to n.  Notice that equation (1) is just a generalisation of equation (6).

Let’s visualise the data:

Now I’ll construct a class that will encapsulate all the methods required for our linear regression model:

## build a class to encompass linear regression with least squares estimation ##
class LR:

#initialiser
def __init__(self):
#private parameters array
self.__B = np.array([])

#train function
def train(self,Xin,Yin):
#add column of 1's to independent variables
X        = np.ones((Xin.shape[0],Xin.shape[1]+1))
X[:,1:]  = Xin
#calculate the model parameters using least squares estimation
Xfactors = np.matmul(np.linalg.inv(np.matmul(np.transpose(X),X)),np.transpose(X))
self.__B = np.matmul(Xfactors,Yin)
#return
return

#predict function
def predict(self,Xin):
#add column of 1's to independent variables
X       = np.ones((Xin.shape[0],Xin.shape[1]+1))
X[:,1:] = Xin
#calculate predictions
Yp      = np.matmul(X,self.__B)
#return predictions
return(Yp)

#return model parameters
def return_B(self):
return(self.__B)

The class functions are as follows:

• __init__(self) : this is the initialiser function which executes automatically when a class instance is declared. The model parameters are initialised here.
• train(self,Xin,Yin) : calculates the model parameters according to equation (5), and stores the results internally.
• predict(self,Xin) : predicts response values based upon the input Xin values, and the internally stored model parameters.
• return_B(self) : return the model parameters.

With this class I’ll now declare an instance, fit the model to the data, and generate predictions:

## fit our data and generate predictions ##
#declare a LR object
lr = LR()
#fit the model
lr.train(x,y)
#make predictions
ypred = lr.predict(x)

Plotting the results:

We can evaluate the model fit using the coefficient of determination (R^2) metric, which compares the variance in the data unexplained by the model, to the total variance in the data:

Seeing the above equation, it’s apparent that an ideal model will produce a R^2 value of 1.  So what value do we get for our model?

## what is our R2 score? ##
r2_score(y,ypred)

0.9865390614365759

This is quite a nice result, and shows that the model we built is working well.  Finally, let’s take a look at the learned parameters to see if we can recover the values we entered when creating the data:

## view our model parameters ##
lr.return_B()

array([[50.93957987],

[ 1.99908478]])

Recall that the intercept and slope we specified when creating the data are 50 and 2, respectively.  This confirms our model is functioning well.

Another option to building our own model is to use the scikit-learn linear regression API:

### Scikit-Learn Linear Regression Model

First we’ll need to import this package:

## imports ##
from sklearn.linear_model import LinearRegression

Next let’s create an instance, fit the model to the data, and predict values:

## fit our data and generate predictions ##
#declare a LinearRegression object
lr = LinearRegression()
#fit the model
lr.fit(x,y)
#make predictions
ypred = lr.predict(x)

Similarly to the previous analysis, let’s plot the results, determine the R^2 value, and display the learned model parameters:

## what is our R2 score? ##
lr.score(x,y)

0.9865390614365759

## view our model parameters ##
print(lr.intercept_)
print(lr.coef_)

[50.93957987]

[[1.99908478]]

We can see here that the results are virtually identical to those we obtained using our custom built class.

## Final Remarks

• The motivation behind the linear regression algorithm, and when it was developed
• The derivation of linear regression, with least squares estimation
• How to implement linear in Python from scratch
• How to use the linear regression module provided by the popular scikit-learn library

I hope you enjoyed this article and gained some value from it!  If you would like to take a closer look at the code presented here please take a look at my GitHub.

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Efren Plata
1 year ago

Congrats for your web page Mike, and thank you for recall me linear regression and least squares estimation method.

Abigail Plata
6 months ago

Thanks! Great information

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