When Can You Safely Use Linear Regression?


According to Kirill, only when you have:

  1. Linear relationship
  2. Homoscedasticity (equal variance)
  3. Multivariate normality (a bimodal distribution would be a disqualifier)
  4. Independence - lack of autocorrelation (a stock price depends on its past values)
  5. Lack of multicollinearity - independent variables should not influence each other
  6. Lack of outliers

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