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Forecasting

3.4 Limitations of linear regression analysis

 Assumes a linear relationship between the variables.

 Only measures the relationship between two variables. In reality the
dependent variable is affected by many independent variables.

 Only interpolated forecasts tend to be reliable. The equation should
not be used for extrapolation.

 Regression assumes that the historical behaviour of the data
continues into the foreseeable future.

 Interpolated predictions are only reliable if there is a significant
correlation between the data.

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