DISCRIMINANT

ANALYSIS

MULTIVARIATE ANALYSIS
The term Multivariate analysis
which is a collection of methods for
analyzing data in which a number of
observations are available for each
object.

TECHNIQUES
All statistical techniques which
simultaneously analyse more than
two variables on a sample of
observations can be categorized as
multivariate techniques.

DISCRIMINANT ANALYSIS
Through discriminant analysis
technique, researcher may classify
individuals or objects into one of two
or more mutually exclusive and
exhaustive groups on the basis of a
set of independent variables.
Discriminant analysis requires
interval independent variables and a
nominal dependent variable.

Conti
Regression analysis in such a
situation is not suitable because the
dependent variable is , not intervally
scaled. Thus discriminant analysis is
considered an appropriate technique
when the single dependent variable
happens to be non-metric and is to
be classified into two or more groups,
depending upon its relationship with
several independent variables which

EXAMPLES
Good or bad
While grouping investment
alternatives based on rate of return,
the criterion of the rate of return will
be categorized into good or bad. In
this example, investment
alternatives is an entity and each
investment alternative is treated as a
member of the entity.

OBJECTIVES
DISCRIMINANT ANALYSIS may be used for
two objectives:
(A)either we want to assess the adequacy of
the classification, given the group
memberships of the objects under study ;
(B) or we wish to assign objects to one of a
number of (known) groups of objects.
Discriminant analysis may thus have a
descriptive or a predictive objective.

TYPES OF ANALYSIS

Multiple discriminant analysis

Linear discriminant
Fishers discriminant
Mean square error discriminant
Bayesian discriminant
Maximum likelihood discrimination
K-Nearest neighbours analysis

ASPECTS
There happens to be a simple scoring
system that assigns a score to each
individual or object. This score is a
weighted average of the individuals
numerical values of his independent
variables. On the basis of this score,
the individual is assigned to the
most likely category.

z = bo + b1X1 + b2X2 ++ bnXn

where,
z = the ith individuals discriminant score
bi = the discriminant coefficiant of the ith
variable
Xi = the ith individuals value of the jth
independent variable

Conti

now find the variability between groups

and variability within groups
Now for judging the statistical significance
between two groups, we work out the
MAHALANOBIS statistic, D , which happens
to be a generalized distance between two
groups, where each group is characterized
by the same of n variables and where it is
assumed that variance-covariance structure
is identical for both groups.

Conti..
D = (U-U)v(U-U)
where,
U = the mean for group one
U = the mean for group two
v = the common variance matrix

Conti..
after that, by transformation
procedure, this D statistic becomes
an F statistic which can be used to
see if the two groups are statistically
different from each other.
Find the table F value and calculated
F value.
If the calculated F value is more than
the table F value, reject the null
hypothesis, H; otherwise, accept the

Conti.
Rather than ANOVA categorical
independent variable and a continuous
dependent variable, discriminant analysis
has continuous independent variables and
a categorical dependent variable.
Discriminant analysis is also different from
factor analysis in that it is not
interdependence technique; a distinction
between dependent & independent
variables must be made.

APPLICATIONS
(1)Bankruptcy prediction:
Inbankruptcy prediction, based on
accounting ratios and other financial
variables, linear discriminant analysis
was the first statistical method
applied to systematically explain
which firms entered bankruptcy vs.
survived.

(2) Marketing :
Inmarketing, discriminant analysis was
once often used to determine the factors
which distinguish different types of
customers and/or products on the basis of
surveys or other forms of collected data.
(3) Astronomy :
In Astronomy, it helps to define
various galaxies and stars.

THANKS