Line Of Best Fit


Line Of Best Fit

A straight line drawn through the center of a group of data points plotted on a scatter plot. Scatter plots depict the results of gathering data on two variables; the line of best fit shows whether these two variables appear to be correlated.

A more precise method for determining the line of best fit is a mathematical calculation called the least squares method. The line of best fit is used in regression analysis, and is a key input in statistical calculations such as the sum of squares. It can also be used as a tool for analyzing investment risk or trading activity.

The line of best fit is a common but simplistic tool for showing how two variables may be related. Examples of types of variables whose correlation (or lack thereof) could be shown with a scatter plot and line of best fit include the number of months someone has been unemployed and the size of their emergency fund, the number of years of education completed and annual salary or mortgage interest rates and the number of home sales.


Investment dictionary. . 2012.

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