# Residual standard deviation

Residual standard deviation |
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**Residual standard deviation** is a measure of the spread of the residuals (differences between actual values and predicted values) in a regression analysis. It is calculated by taking the square root of the average of the squared residuals. Residual standard deviation can be used to compare different regression models and understand the accuracy of predictions. A low residual standard deviation indicates that the model is able to accurately predict the values of the dependent variable and that most of the observed data points are close to the regression line.

## Example of residual standard deviation

- Suppose you have a data set containing the heights of people in a certain population. You then fit a regression line to the data to predict the heights of people in the population based on their age. The residual standard deviation can be used to measure the accuracy of the model by calculating the difference between the actual heights and the predicted heights. The lower the residual standard deviation, the more accurate the model is at predicting heights.
- Another example of residual standard deviation would be in predicting stock prices. A regression line can be used to predict future stock prices based on historical data. The residual standard deviation can be used to measure the accuracy of the predictions by calculating the difference between the actual and predicted stock prices. The lower the residual standard deviation, the more accurate the model is at predicting stock prices.

## Formula of residual standard deviation

The residual standard deviation is a measure of the spread of the residuals or differences between the predicted values and the actual values in a regression analysis. It is calculated by taking the square root of the average of the squared residuals. The formula for the residual standard deviation is given by:

$$\sigma_{res} = \sqrt{\frac{1}{n-2}\sum_{i=1}^n (y_i - \hat{y}_i)^2}$$

Where $$\sigma_{res}$$ is the residual standard deviation, $$n$$ is the number of data points, $$y_i$$ is the observed value at data point $$i$$, and $$\hat{y}_i$$ is the predicted value at data point $$i$$.

The residual standard deviation is used to compare different regression models and understand the accuracy of predictions. A low residual standard deviation indicates that the model is able to accurately predict the values of the dependent variable and that most of the observed data points are close to the regression line.

## When to use residual standard deviation

Residual standard deviation can be used in a variety of different contexts, including:

- Comparing different regression models to one another and understanding the accuracy of their predictions.
- Evaluating the overall fit of a regression model and its ability to predict the value of a dependent variable.
- Identifying potential outliers in a regression model by comparing the residuals to the residual standard deviation.
- Testing the homoscedasticity of a regression model by checking if the residuals are evenly distributed around the regression line.
- Assessing the reliability of a regression model by checking if the residuals are randomly distributed.

## Types of residual standard deviation

There are several types of residual standard deviation, which are used to measure the spread of residuals in a regression analysis. These include:

**Standardized residual**: This is the ratio of the residual value to the estimated standard deviation of the residuals. It is used to measure the size of the residual in comparison to the standard deviation of the residuals.**Unstandardized residual**: This is the difference between the observed value and the predicted value. It is used to measure the absolute size of the residuals.**Adjusted residual**: This is the difference between the observed value and the predicted value, adjusted for the number of predictors in the model. It is used to measure the relative size of the residuals.**Studentized residual**: This is the ratio of the residual value to the estimated standard deviation of the studentized residuals. It is used to measure the size of the residual in comparison to the standard deviation of the studentized residuals.

## Advantages of residual standard deviation

Residual standard deviation is a useful measure of the accuracy of a regression model. It can be used to compare different models and understand the accuracy of predictions. The following are some advantages of using residual standard deviation:

- It provides a measure of how accurately the model is able to predict values of the dependent variable.
- It can be used to compare different regression models and identify the best one for a particular dataset.
- It can help identify possible outliers or errors in the data that may be influencing the results.
- It can help detect any patterns or trends in the residuals that may indicate a need for further data analysis.
- It can be used to adjust the model or adjust the data to improve the accuracy of predictions.

## Limitations of residual standard deviation

Residual standard deviation is an important measure of the accuracy of a regression model, but it has a few limitations. These include:

- The residual standard deviation does not account for any bias that could exist in the model. It does not indicate whether the regression line is correctly capturing the trends in the data, or if it is over- or under-estimating the true values.
- The residual standard deviation does not take into account any outliers that may exist in the data set. Outliers can have a significant effect on the accuracy of the model, but the residual standard deviation does not consider this.
- Residual standard deviation does not provide any information about the reliability of the model. A low residual standard deviation does not necessarily indicate that the model is reliable, as it does not take into account any other factors that could affect the accuracy of the model.
- Residual standard deviation does not provide any information about the underlying assumptions of the model. It is possible that the model is based on incorrect assumptions, which could lead to inaccurate predictions.

Residual standard deviation is a measure of the spread of the residuals (differences between actual values and predicted values) in a regression analysis. Other approaches related to residual standard deviation include:

**Root Mean Squared Error (RMSE)**: RMSE is another metric that measures the differences between actual values and predicted values. It is calculated by taking the square root of the average of the squared differences between each value and its prediction.**Mean Absolute Error (MAE)**: MAE is a measure of the average magnitude of the errors in a set of predictions. It is calculated by taking the average of the absolute differences between the actual values and their corresponding predictions.**Mean Squared Error (MSE)**: MSE is a measure of the average of the squares of the errors made in a set of predictions. It is calculated by taking the average of the squared differences between each value and its prediction.

In summary, residual standard deviation is used to measure the spread of the residuals in a regression analysis, while other metrics such as RMSE, MAE, and MSE can be used to measure the accuracy of predictions.

## Suggested literature

- Bonett, D. G. (2005).
*Robust confidence interval for a residual standard deviation*. Journal of Applied Statistics, 32(10), 1089-1094.