Iliya Valchanov

Ivan Manov

Machine Learning in
Python

Course Notes
365 DATA SCIENCE 2

Table of Contents

Abstract ........................................................................................................................ 4

Section 1: Linear Regression .................................................................................... 5

1.1 The linear regression model .......................................................................... 5

1.2 Correlation vs regression ............................................................................... 6

1.3 Geometrical representation of the Linear Regression Model ................. 7

1.4 Regression in Python ....................................................................................... 8

1.5 Interpreting the regression table .................................................................. 9

1.6 OLS ................................................................................................................... 13

1.7 R-squared ........................................................................................................ 14

1.8 Multiple linear regression............................................................................. 15

1.9 Adjusted R-squared ....................................................................................... 15

1.10 F-test............................................................................................................... 16

1.11 OLS Assumptions: Linearity ....................................................................... 17

1.12 OLS Assumptions: No endogeneity......................................................... 18

1.13 OLS Assumptions: Normality and homoscedasticity ............................ 18

1.14 OLS Assumptions: No autocorrelation .................................................... 19

1.15 OLS Assumptions: No multicollinearity ................................................... 20

1.16 Dealing with categorical data – Dummy variables ................................ 20

365 DATA SCIENCE 3

1.17 Underfitting and overfitting ....................................................................... 21

1.18 Training and testing .................................................................................... 22

Section 2: Logistic Regression ............................................................................... 23

2.1 Logistic vs logit function ............................................................................... 23

2.2 Building a logistic regression ...................................................................... 24

2.3 Understanding the tables ............................................................................. 25

2.4 Calculating the accuracy of the model ...................................................... 27

Section 3: Cluster Analysis ...................................................................................... 29

Section 4: K-Means Clustering ............................................................................... 31

4.1 Selecting the number of clusters ................................................................ 32

4.2 K-means clustering - pros and cons ........................................................... 32

4.3 Standardization .............................................................................................. 32

4.4 Relationship between clustering and regression .................................... 33

Section 5: Types of clustering ................................................................................ 34

5.1 Dendrogram ................................................................................................... 35

365 DATA SCIENCE 4

Abstract

Regression analysis is one of the most widely used methods for predictions,

applied whenever we have a causal relationship between variables. A large

portion of the predictive modelling that occurs in practice is carried out through

regression analysis. It becomes extremely powerful when combined with

techniques like factor analysis.

Regression models help us make predictions about the population based

on sample data.

Get a sample data

Design a model

Make predictions about the whole population

365 DATA SCIENCE 5

Section 1: Linear Regression

A linear regression is a linear approximation of a causal relationship

between two or more variables. It is probably the most fundamental machine

learning method and a starting point for the advanced analytical learning path of

every aspiring data scientist.

1.1 The linear regression model

As many other statistical techniques, regression models help us make

predictions about the population based on sample data.

Variables:

Dependent (predicted): Y

Independent (predictors): 𝑥1 , 𝑥2 , 𝑥3 …𝑥𝑘

Y is a function of the x variables, and the regression model is a linear

approximation of this function. The equation describing how Y is related to x is:

Simple linear regression model (population):

Y = 𝛽0 + 𝛽1 𝑥1 + 𝜀

Y – dependent variable

𝑥1 – independent variable

𝛽0– constant/intercept

𝛽1– coefficient – quantifies the effect of 𝑥1 on 𝑦̂

𝜀 – error of estimation
365 DATA SCIENCE 6

Simple linear regression equation (sample):

𝑦̂ = 𝑏0 + 𝑏1 𝑥1

𝑦̂ – estimated/predicted value

𝑏0 – coefficient – estimate of 𝛽0

𝑏1 – coefficient – estimate of 𝛽1

𝑥1 – sample data for the independent variable

𝜀 – error of estimation

When using regression analysis, the goal is to predict the value of Y,

based on the value of x.

1.2 Correlation vs regression

Correlation - measures the degree of relationship between two variables

Regression - shows how one variable affects another or what changes it

causes to the other

Correlation Regression

The relationship between two variables How one variable affects another

Movement together Cause and effect

Symmetrical One-way

A single point A line

Comparison between correlation and regression

365 DATA SCIENCE 7

Linear regression analysis is known for the best fitting line that goes

through the data points and minimizes the distance between them.

1.3 Geometrical representation of the Linear Regression Model

𝑦̂ = 𝑏0 + 𝑏1 𝑥1

𝑦̂𝑗

𝑥̂𝑗

The linear regression model

Data points – the observed values (x)

𝑏0 - a constant - the intercept of the regression line with the y axis

𝑏1 - the slope of the regression line – shows how much y changes for each

unit change of x

𝑒̂𝑖 – estimator of the error - the distance between the observed values and

the regression line

ŷ - the value predicted by the regression line

Regression line – the best fitting line through the data points
365 DATA SCIENCE 8

1.4 Regression in Python

Coding steps:

• Importing the relevant libraries

• Loading the data

• Defining the dependent and the independent variables following the

regression equation

• Exploring the data

• Plotting a scatter plot

• Regression itself

• Adding a constant

• Fitting the model according to the OLS method with a dependent

variable y and an independent variable x

▪ Ordinary least squares (OLS) – a method for finding the line

which minimizes the SSE

• Printing a summary of the regression

A summary table in Jupyter Notebook

365 DATA SCIENCE 9

• Creating a scatter plot

• Defining the regression equation

• Plotting the regression line

Plotted regression line in Jupyter Notebook

1.5 Interpreting the regression table

Summary table and important regression metrics

• A model summary

Model summary table

Dep. Variable - the dependent variable, y; This is the variable we are trying

to predict
365 DATA SCIENCE 10

R-squared - variability of the data, explained by the regression model.

Range: [0;1]

Adj. R-squared - variability of the data, explained by the regression model,

considering the number of independent variables. Range: < 0; could be negative,

but a negative number is interpreted as 0

F-statistic - evaluates the overall significance of the model (if at least 1

predictor is significant, F-statistic is also significant). The lower the F-statistics, the

closer to a non-significant model

Prob (F-statistic) - P-value for F-statistic

• A coefficients table

std err = standard error – shows the accuracy of the prediction for each

variable

Coefficient of the intercept, 𝑏0 ; sometimes we refer to this variable as

constant or bias (as it ‘corrects’ the regression equation with a constant

value)
365 DATA SCIENCE 11

Coefficient of the independent variable i: 𝑏𝑖 ; this is usually the most

important metric – it shows us the relative/absolute contribution of each

independent variable of our model

P-value of t-statistic; The t-statistic of a coefficient shows if the

corresponding independent variable is significant or not

• Additional tests

A way for detecting autocorrelation (a violation of the fourth OLS

assumption)

Decomposition of variability

Variance - a measure of variability calculated by taking the average of

squared deviations from the mean. It describes how far the observed values differ

from the average of predicted values

• Explained variability - variability explained by the explanatory variables

used in our regression

• Unexplained variability - variability explained by other factors that are

not included in the model

365 DATA SCIENCE 12

• Total variability - variability of the outcome variable

The total variability of the data set is equal to the variability explained by the

regression line plus the unexplained variability, known as error.

• Sum of squares total (SST) = Total sum of squares (TSS) – measures the

total variability of the dataset

SST = ∑𝑛𝑖=1(𝑦𝑖 − 𝑦̅)2

𝑦𝑖 – observed dependent variable

𝑦̅ - mean of the dependent variable

• Sum of squares regression (SSR) = Explained sum of squares (ESS) –

measures the explained variability by the regression line

SSR = ∑𝑛𝑖=1(𝑦̂𝑖 − 𝑦̅)2

𝑦̂𝑖 - the predicted value of the dependent variable

𝑦̅ - mean of the dependent variable

• Sum of squares error (SSE) = Residual sum of squares (RSS) – measures

the unexplained variability by the regression

SSE = ∑𝑛𝑖=1 𝑒𝑖 2

𝑒𝑖 – the difference between the actual value of the dependent variable

and the predicted value

𝑒𝑖 = 𝑦𝑖 − 𝑦̂𝑖

Total Variability = Explained variability + Unexplained variability:

SST = SSR + SSE

SSR SSE
365 DATA SCIENCE 13

1.6 OLS

OLS or the ordinary least squares is the most common method to do estimate

of the linear regression equation. “Least squares” stands for the minimum squares

error, or SSE. This method aims to find the line, which minimizes the sum of the

squared errors.
𝑛
𝑆(𝑏) = ∑ (𝑦 − 𝑥𝑏)2
𝑖=1

There are other methods for determining the regression line. They are

preferred in different contexts.

365 DATA SCIENCE 14

1.7 R-squared

R-squared - a measure describing how powerful a regression is.

0 1

R-squared visual interpretation

0 - The regression explains none of the variability

1- The regression explains all of the variability

R-squared is a relative measure and takes values ranging from 0 to 1. An R

squared of zero means your regression line explains none of the variability of the

data. An R squared of 1 would mean your model explains the entire variability of the

data. Unfortunately, regressions explaining the entire variability are rare. What you

will usually observe is values ranging from 0.2 to 0.9.

365 DATA SCIENCE 15

1.8 Multiple linear regression

Population model:

𝑦 = 𝛽0 + 𝛽1 𝑥1 + 𝛽2 𝑥2 + . . . + 𝛽𝑘 𝑥𝑘 + 𝜀

Multiple regression equation:

𝑦̂ = 𝑏0 + 𝑏1 𝑥1 + 𝑏2 𝑥2 + . . . + + 𝑏𝑘 𝑥𝑘

𝑦̂ – inferred value

𝑏0 – intercept

𝑥1 . . . 𝑥𝑘 – independent variables

𝑏1 . . . 𝑏𝑘 – corresponding coefficients

• Addresses the higher complicity of a problem

• Contains many more independent variables

• It is not about the best fitting line as there is no way to represent the

result graphically. Instead, it is about the best fitting model

➔ min SSE

SST = SSR + SSE

SSR SSE

1.9 Adjusted R-squared

Adjusted R-squared - measures how much of the total variability is

explained by our model, considering the number of variables. The adjusted R

squared is always smaller than the R squared, as it penalizes excessive use of

variables. It is the basis for comparing models.

Multiple linear regression and adjuster R-squared in Python

365 DATA SCIENCE 16

Steps:

• Importing the relevant libraries

• Loading the data

• Defining the dependent and the independent variables following the

regression equation -

• Regression itself

• Adding a constant

• Fitting the model according to the OLS method with a dependent

variable y and an independent variable x, which can contain

multiple values – for instance a DataFrame of Series

• Printing a summary of the regression

1.10 F-test

The F-statistic is used for testing the overall significance of the model.

F-test:

𝐻0 : 𝛽1 = 𝛽2 =. . . = 𝛽𝑘 = 0

𝐻1 : 𝑎𝑡 𝑙𝑒𝑎𝑠𝑡 𝑜𝑛𝑒 𝛽𝑖 ≠ 0

If all betas are 0, then none of the Xs matter

➔ our model has no merit

The lower the F-statistic, the closer to a non-significant model.

365 DATA SCIENCE 17

1.11 OLS Assumptions: Linearity

𝑦 = 𝛽0 + 𝛽1 𝑥1 + 𝛽2 𝑥2 + . . . + 𝛽𝑘 𝑥𝑘 + 𝜀

The linear regression is the simplest non-trivial relationship.

A linear relationship between two variables

The easiest way is to verify if the relationship between two variables is linear

is to choose an independent variable X one and plot it against the depended Y on

a scatter plot. If the data points form a pattern that looks like a straight line, then a

linear regression model is suitable.

If the relationship is non-linear, you should not use the data before

transforming it appropriately.

Fixes:

• run a non-linear regression

• exponential transformation

• log transformation
365 DATA SCIENCE 18

1.12 OLS Assumptions: No endogeneity

No endogeneity refers to the prohibition of a link between the independent

variables and the errors, mathematically expressed in the following way:

𝜎𝑋𝜀 = 0 ∶ ⩝ 𝑥, 𝜀

The error (the difference between the observed values and the predicted

values) is correlated with the independent values. This is a problem referred to as

omitted variable bias. Omitted variable bias is introduced to the model when you

forget to include a relevant variable.

As each independent variable explains y, they move together and are

somewhat correlated. Similarly, y is also explained by the omitted variable, so they

are also correlated. Chances are that the omitted variable is also correlated with at

least one independent x. but it is not included it as a regressor. Everything that you

don’t explain with your model goes into the error. So, the error becomes correlated

with everything else.

1.13 OLS Assumptions: Normality and homoscedasticity

𝜀~ 𝑁(0, 𝜎 2 )

• Normality = N – assuming the error is normally distributed

• Zero mean - if the mean is not expected to be zero, then the line is not the

best fitting one. However, having an intercept solves that problem, so in

real-life it is unusual to violate this part of the assumption.

• Homoscedasticity = equal variance - the error terms should have equal

variance one with the other

365 DATA SCIENCE 19

• Prevention:

▪ Looking for omitted variable bias

▪ Looking for outliers

▪ Log transformation – creating a semi-log or a log-log model

1.14 OLS Assumptions: No autocorrelation

No autocorrelation = no serial correlation

𝜎𝜀𝑖 𝜀𝑗 = 0 ∶ ⩝ 𝑖 ≠ 𝑗

Errors are assumed to be uncorrelated.

Serial correlation is highly unlikely to be found it in data taken at one

moment of time, known as cross-sectional data. However, it is very common in

time series data.

Prevention:

• Dublin-Watson test:

• 2 – no autocorrelation

• < 1 and >3 – cause an alarm

When in the presence of autocorrelation - avoid the linear regression

model!

Alternatives:

• Autoregressive model

• Moving average model

• Autoregressive moving average model

365 DATA SCIENCE 20

• Autoregressive integrated moving average model

1.15 OLS Assumptions: No multicollinearity

ρ𝑥𝑖 𝑥𝑗 ≈ 1 ∶ ⩝ 𝑖, 𝑗; 𝑖 ≠ 𝑗

We observe multicollinearity when two or more variables have a high

correlation. This poses a problem to our model.

Multicollinearity is a big problem but is also the easiest to notice. Before

creating the regression, find the correlation between each two pairs of independent

variables, and you will know if a multicollinearity problem may arise.

Fixes:

• Dropping one of the two variables

• Transforming them into one (e.g. average price)

• Keeping them both while treating them with extreme caution

The correct approach depends on the research at hand.

1.16 Dealing with categorical data – Dummy variables

Dummy – an imitation of categories with numbers

Example:

Attendance

Categorical data Numerical data

Yes 1
365 DATA SCIENCE 21

No 0

In regression analysis, a dummy is a variable that is used to include

categorical data into a regression model.

Without categorical data: With categorical data:

1.17 Underfitting and overfitting

Underfitting model Overfitting model Good model

Doesn’t capture the logic The training model has Captures the

of the data focused on the particular underlying logic of

training set so much, that the data

it captures all the noise

and “misses the point”

Low train accuracy High train accuracy High train accuracy

Low test accuracy Low test accuracy High test accuracy

365 DATA SCIENCE 22

Comparison between an overfitted model, an underfitted model, and a good

model

1.18 Training and testing

We split the data into training and testing parts and we train the model on

the training dataset but test it on the testing dataset. The goal is to avoid the

scenario where the model learns to predict the training data very well but fails

when given new samples

• Generating data we are going to split

• Splitting the data

• Exploring the results

365 DATA SCIENCE 23

Section 2: Logistic Regression

A logistic regression implies that the possible outcomes are not numerical,

but rather – categorical. In the same way that we include categorical predictors into

a linear regression through dummies, we can predict categorical outcomes through

a logistic regression.

Logistic regression

2.1 Logistic vs logit function

The main difference between logistic and linear regressions is the linearity

assumption – logistic regressions are non-linear by definition. The logistic

regression predicts the probability of an event occurring. Thus, we are asking the

question: given input data, what is the probability of a student being admitted?

Input Probability

0
365 DATA SCIENCE 24

Logistic function

Logistic regression model:

𝑒 (𝛽0+𝛽1𝑥1+...+ 𝛽𝑘𝑥𝑘)
𝑝(𝑋) =
1 + 𝑒 (𝛽0+𝛽1𝑥1+...+ 𝛽𝑘𝑥𝑘)

Exponential of a linear combination of inputs and coefficients, divided by,

one, plus, the same exponential.

After transforming, the expression looks like this:

LogIt regression model:

Odds 𝑝(𝑋)
= 𝑒 (𝛽0+𝛽1𝑥1+...+ 𝛽𝑘𝑥𝑘)
1 − 𝑝(𝑋)

The probability of the event occurring, divided by the probability of the

event NOT occurring equals the exponential from above.

𝑙𝑜𝑔(𝑜𝑑𝑑𝑠) = 𝛽0 + 𝛽1 𝑥1 +. . . + 𝛽𝑘 𝑥𝑘

Linear regression is the basic of logistic regression.

2.2 Building a logistic regression

Steps when working with statsmodels.api:

• Adding a constant

• Applying the sm.Logit() method - takes as arguments the

dependent variable and the independent variable

• Fitting the regression

365 DATA SCIENCE 25

2.3 Understanding the tables

Method MLE = Maximum likelihood estimation

• Likelihood function – a function which estimates how likely it is

that the model at hand describes the real underlying relationship

of the variables. The bigger the likelihood function, the higher the

probability that our model is correct.

MLE tries to maximize the likelihood function

LL-Null = Log likelihood-null – the log-likelihood of a model which has no

independent variables

LLR p-value = Log likelihood ratio – measures if our model is statistically

different from LL-null, a.k.a. a useless model

Pseudo R-squ. = Pseudo R-squared – this measure is mostly useful for

comparing variations of the same model. Different models will have completely

different and incomparable Pseudo R-squares.

• AIC

• BIC

• McFadden’s R-squared
365 DATA SCIENCE 26

△ 𝑜𝑑𝑑𝑠 = 𝑒 𝑏𝑘

For a unit change in a variable, the change in the odds equals the exponential

of the coefficient. That exactly is what provides us with a way to interpret the

coefficients of a logistic regression.

Binary predictors in a logistic regression - in the same way we create

dummies for a linear regression, we can use binary predictors in a logistic

regression.
365 DATA SCIENCE 27

2.4 Calculating the accuracy of the model

Confusion matrix

For 69 observations, the model predicted 0 when the true value was 0.

For 90 observations, the model predicted 1, and it actually was 1.

These cells indicate in how many cases the model did its job well.

In 4 cases, the model predicted 0, while it was 1.

In 5 cases, the regression predicted 1 while it was 0.

The most important metric we can calculate from this matrix is the accuracy of

the model.
365 DATA SCIENCE 28

In 69 plus 90 of the cases, the model was correct. In 4 plus 5 of the cases, the

model was incorrect. Overall, the model made an accurate prediction in 159 out of

168 cases. That gives us a 159 divided by 168, which is 94.6% accuracy.
365 DATA SCIENCE 29

Section 3: Cluster Analysis

Cluster analysis is a multivariate statistical technique that groups

observations on the basis some of their features or variables that they are

described by. The goal of clustering is to maximize the similarity of observations

within a cluster and maximize the dissimilarity between clusters.

Explore the data

Cluster Analysis

Identify patterns

Classification Clustering

Model (Inputs) > Outputs > Correct Model (Inputs) > Outputs > ?

values

Predicting an output category, given Grouping data points together based

input data on similarities among them

Comparison between classification and clustering

• Measuring the distance between two data points

• Defining the term ‘centroid’

365 DATA SCIENCE 30

Euclidean distance

Geometrical representation of the relationship between two points

2D space: d(A,B) = d(B,A) = √(𝑥2 − 𝑥1 1)2 + (𝑦2 − 𝑦1 )2

3D space: d(A,B) = d(B,A) = √(𝑥2 − 𝑥1 )2 + (𝑦2 − 𝑦1 )2 + (𝑧2 − 𝑧1 )2

If the coordinates of A are (𝑎1 , 𝑏1 ,…, 𝑎𝑛 ) and of B are (𝑏1 , 𝑏2 ,… 𝑏𝑛 ):

N-dim space:

d(A,B) = d(B,A) = √(𝑎1 − 𝑏1 )2 + (𝑎2 − 𝑏2 )2 + ⋯ + (𝑎𝑛 − 𝑏𝑛 )2

Centroid – the mean position of a group of points

365 DATA SCIENCE 31

Section 4: K-Means Clustering

K-means is the most popular method for identifying clusters.

• Choosing the number of clusters

K – the number of clusters we are trying to identify

• Specifying the cluster seeds based on a prior knowledge on the

given data

Seed – a starting centroid

• Assigning each data point to a centroid based on proximity

(measured with Euclidean distance)

• Adjusting the centroids

Reassigning the data points and recalculate the centroids

Clusters

The goal is to minimize the distance between the points in a cluster

(WCSS) and maximize the distance between the clusters.

WCSS - within-cluster sum of squares

365 DATA SCIENCE 32

4.1 Selecting the number of clusters

The Elbow method – a criterion for setting the proper number of clusters. It

is about making the WCSS as low as possible, while still having a small number of

clusters to reason about.

4.2 K-means clustering - pros and cons

Pros Cons

Simple to implement We need to pick K

Computationally efficient Sensitive to initialization

Widely used Sensitive to outliers

Always yields a result Produces spherical solutions

Pros and cons of the K-means clustering

4.3 Standardization

The aim of standardization is to reduce the weight of higher numbers and

increase that of lower ones. If we don’t standardize, the range of the values serves

as weights for each variable, and we are not taking advantage of the size data

whatsoever. Therefore, it is a good practice to standardize the data before

clustering.

When we should not standardize - as standardization is trying to put all

variables on equal footing, in some cases, we don’t need to do that. If we know that
365 DATA SCIENCE 33

one variable is inherently more important than another, then standardization

shouldn’t be used.

4.4 Relationship between clustering and regression

Classification Clustering

Classification is a typical example of Cluster analysis is a typical example of

supervised learning unsupervised learning

It is used whenever we have input data It is used whenever we have input data

and the desired correct outcomes but have no clue what the correct

(targets). We train our data to find the outcomes are

patterns in the inputs that lead to the

targets

With classification we need to know Clustering is about grouping data

the correct class of each of the points together based on similarities

observations in our data, in order to among them and difference from

apply the algorithm others

A typical example of classification is A typical example of clustering is the K-

the logistic regression means clustering

365 DATA SCIENCE 34

Comparisson between classification and clustering

In classification, we use the targets (correct values) to adjust the model to

get better outputs. In clustering, there is no feedback loop, therefore, the model

simply finds the outputs it deems best.

Section 5: Types of clustering

Flat Hierarchical

Divisive

Agglomerative

Types of clustering

Flat - with flat methods there is no hierarchy, but rather the number of

clusters are chosen prior to clustering. Flat methods have been developed

because hierarchical clustering is much slower and computationally expensive.

Nowadays, flat methods are preferred because of the volume of data we typically

try to cluster.

Hierarchical - historically, hierarchical clustering was developed first. An

example clustering with hierarchy is the taxonomy of the animal kingdom. It is

superior to flat clustering in the fact that it explores (contains) all solutions.
365 DATA SCIENCE 35

• Divisive (top-down) - with divisive clustering, we start from a

situation where all observations are in the same cluster. Then, we

split this big cluster into 2 smaller ones. Next, we continue with 3,

4, 5, and so on, until each observation is its separate cluster. To

find the best split, we must explore all possibilities at each step.

• Agglomerative (bottom-up) - when it comes to

agglomerative clustering, the approach is bottom up. To find the

combination of observations into a cluster, we must explore all

possibilities at each step.

5.1 Dendrogram

Pros:

• Hierarchical clustering shows all the possible linkages between

clusters

• It’s easy to understand the data

• No need to define the number of clusters (like with K-means)

• There are many methods performing hierarchical clustering

Cons:

• The biggest con is scalability

• It is computationally expensive – the more observations, the

slower it gets
365 DATA SCIENCE 36

Iliya Valchanov
IvanEmail:
Manov
Address:
Email: team@365datascience.com