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    Regression & Correlation Analysis with Durbin Watson Test

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    What is the relationship between the price of crude oil and the price you pay at the pump for gasoline? The attached file (Oil & Gas) contains the price for a barrel of crude oil and a gallon of gasoline for 100 weeks ending June 1, 2009.

    (a) Construct a scatter plot with oil on the horizontal axis and gasoline on the vertical axis
    (b) Use the least-squares method to develop a simple linear regression equation to predict the price of a gallon of gasoline using the price of a barrel of crude oil as the independent variable
    (c) Interpret the meaning of the slope b1, in this problem
    (d) Plot the residuals versus the time period
    (e) Compute the Durbin-Watson statistic
    (f) At the 0.05 level of significance, is there evidence of positive autocorrelation among the residuals?
    (g) Based on the result of (d) through (f), is there reason to question the validity of the model?

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    Solution Summary

    This solution is comprised of a detailed explanation for correlation coefficient and regression analysis. Excel is used for the regression analysis and correlation coefficient. Full interpretation is given for correlation and regression analysis along with Durbin Watson test statistics. The value of Durbin Watson test is calculated in order to decide the existence of serial correlation and also the prediction value and valid conclusion is provided in the solution.