Line of best fit
For ordinary least squares, the fitted line minimises the sum of squared vertical residuals for the selected response variable and observations. Its intercept and slope have units and interpretation in context. The fitted line is an approximation; inspect residuals and avoid assuming it remains valid beyond the data.
Worked example
A fitted cost line is cost = $2,000 + $4 per machine hour. At 500 hours the fitted cost is $4,000, before considering forecast uncertainty.
Common mistake
Drawing a line that passes through every point, or interpreting the fitted relationship as proof of causation.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | MA | Direct | September 2026–June 2027 |
| FIA | FMA | Direct | September 2026–June 2027 |
