Regression Techniques analysts should know about.

By arvind | Oct 26, 2018 | 2733 Views

Linear and Logistic regressions are usually the first algorithms people learn in predictive modelling. Due to their popularity, a lot of analysts even end up thinking that they are the only form of regressions. The ones who are slightly more involved think that they are the most important amongst all forms of regression analysis.
The truth is that there are innumerable forms of regressions, which can be performed. Each form has its own importance and a specific condition where they are best suited to apply. In this article, I have explained the most commonly used 7 forms of regressions in a simple manner. Through this article, I also hope that people develop an idea of the breadth of regressions, instead of just applying linear / logistic regression to every problem they come across and hoping that they would just fit!
How many types of regression techniques do we have?
There are various kinds of regression techniques available to make predictions. These techniques are mostly driven by three metrics (number of independent variables, type of dependent variables and shape of regression line). We'll discuss them in detail in the following sections. 
For the creative ones, you can even cook up new regressions, if you feel the need to use a combination of the parameters above, which people haven't used before. But before you start that, let us understand the most commonly used regressions:
1. Linear Regression
It is one of the most widely known modelling techniques. Linear regression is usually among the first few topics which people pick while learning predictive modelling. In this technique, the dependent variable is continuous, independent variable(s) can be continuous or discrete, and nature of regression line is linear.
Linear Regression establishes a relationship between dependent variable (Y) and one or more independent variables (X) using a best fit straight line (also known as regression line).
It is represented by an equation Y=a+b*X + e, where a is intercept, b is slope of the line and e is error term. This equation can be used to predict the value of target variable based on given predictor variable(s).
2. Logistic Regression
Logistic regression is used to find the probability of event=Success and event=Failure. We should use logistic regression when the dependent variable is binary (0/ 1, True/ False, Yes/ No) in nature. Here the value of Y ranges from 0 to 1 and it can represent by following equation.
odds= p/ (1-p) = probability of event occurrence / probability of not event occurrence
ln(odds) = ln(p/(1-p))
logit(p) = ln(p/(1-p)) = b0+b1X1+b2X2+b3X3....+bkXk
Above, p is the probability of presence of the characteristic of interest. A question that you should ask here is "why have we used log in the equation?".
Since we are working here with a binomial distribution (dependent variable), we need to choose a link function which is best suited for this distribution. And, it is logit function. In the equation above, the parameters are chosen to maximize the likelihood of observing the sample values rather than minimizing the sum of squared errors (like in ordinary regression).
3. Polynomial Regression
A regression equation is a polynomial regression equation if the power of independent variable is more than 1. The equation below represents a polynomial equation:
y=a+b*x^2
In this regression technique, the best fit line is not a straight line. It is rather a curve that fits into the data points.
4. Stepwise Regression
This form of regression is used when we deal with multiple independent variables. In this technique, the selection of independent variables is done with the help of an automatic process, which involves no human intervention.
This feat is achieved by observing statistical values like R-square, t-stats and AIC metric to discern significant variables. Stepwise regression basically fits the regression model by adding/dropping co-variants one at a time based on a specified criterion. Some of the most commonly used Stepwise regression methods are listed below:
Standard stepwise regression does two things. It adds and removes predictors as needed for each step.
Forward selection starts with most significant predictor in the model and adds variable for each step.
Backward elimination starts with all predictors in the model and removes the least significant variable for each step.
The aim of this modelling technique is to maximize the prediction power with minimum number of predictor variables. It is one of the methods to handle higher dimensionality of data set.
5. Ridge Regression
Ridge Regression is a technique used when the data suffers from multicollinearity (independent variables are highly correlated). In multicollinearity, even though the least squares estimate (OLS) are unbiased; their variances are large which deviates the observed value far from the true value. By adding a degree of bias to the regression estimates, ridge regression reduces the standard errors.
Above, we saw the equation for linear regression. Remember? It can be represented as:
y=a+ b*x
This equation also has an error term. The complete equation becomes:
y=a+b*x+e (error term),  [error term is the value needed to correct for a prediction error between the observed and predicted value]
=> y=a+y= a+ b1x1+ b2x2+....+e, for multiple independent variables.
In a linear equation, prediction errors can be decomposed into two sub components. First is due to the biased and second is due to the variance. Prediction error can occur due to any one of these two or both components. Here, we'll discuss about the error caused due to variance.
Ridge regression solves the multicollinearity problem through shrinkage parameter λ (lambda). Look at the equation below. 
In this equation, we have two components. First one is least square term and other one is lambda of the summation of β2 (beta- square) where β is the coefficient. This is added to least square term in order to shrink the parameter to have a very low variance.
6. Lasso Regression
Similar to Ridge Regression, Lasso (Least Absolute Shrinkage and Selection Operator) also penalizes the absolute size of the regression coefficients. In addition, it is capable of reducing the variability and improving the accuracy of linear regression models.  Look at the equation below:  Lasso regression differs from ridge regression in a way that it uses absolute values in the penalty function, instead of squares. This leads to penalizing (or equivalently constraining the sum of the absolute values of the estimates) values which causes some of the parameter estimates to turn out exactly zero. Larger the penalty applied, further the estimates get shrunk towards absolute zero. This results to variable selection out of given 'n' variables.
7. ElasticNet Regression
ElasticNet is hybrid of Lasso and Ridge Regression techniques. It is trained with L1 and L2 prior as regularizer. Elastic-net is useful when there are multiple features which are correlated. Lasso is likely to pick one of these at random, while elastic-net is likely to pick both. 
A practical advantage of trading-off between Lasso and Ridge is that, it allows Elastic-Net to inherit some of Ridge's stability under rotation.


Source: HOB