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• Darshan Pandya

# 5 Statistical Concepts you must know before becoming a Data Scientist

Updated: Jun 25, 2019

Irrespective of the extent up to which you are affected by the vex of Data Science, it is hard not only to simply ignore the importance of data but also our ability to analyse, organise, and contextualise it. Data scientists live at the intersection of coding, statistics, and critical thinking. As Josh Wills put it, “data scientist is a person who is better at statistics than any programmer and better at programming than any statistician.” A lot of my friends who are software engineers want to switch their careers as a data scientist but the problem is that they are blindly utilising machine learning frameworks such as TensorFlow or Apache Spark to their data without a thorough understanding of statistical theories behind them.

It is important to understand the ideas behind these various statistical and machine leaning techniques, in order to know how and when to use them. One has to understand the simpler methods first, in order to grasp the more sophisticated ones. It is important to accurately assess the performance of a method, to know how well or how badly it is working. Additionally, this is an exciting research area, having important applications in science, industry, and finance. Ultimately, statistical learning is a fundamental ingredient in the training of a modern data scientist.

Thus, for anyone who is aspiring to become a data scientist from scratch, or wants to make a career transition into this field, here are 8 statistical techniques that you must be well-versed with and have a deep understanding of :

1. Linear Regression:

In statistics, a linear regression is a method to predict a target variable by fitting the best linear relationship between the dependent and independent variable. The best fit is done by making sure that the sum of all the distances between the shape and the actual observations at each point is as small as possible. The fit of the shape is “best” in the sense that no other position would produce less error given the choice of shape. Two major types of linear regression are Simple Linear Regression and Multiple Linear Regression. Simple Linear Regression uses a single independent variable to predict a dependent variable by fitting a best linear relationship. Multiple Linear Regression uses more than one independent variable to predict a dependent variable by fitting a best linear relationship.

Linear regression is a basic and commonly used type of predictive analysis. The overall idea of regression is to examine two things: (1) does a set of predictor variables do a good job in predicting an outcome (dependent) variable? (2) Which variables in particular are significant predictors of the outcome variable, and in what way do they–indicated by the magnitude and sign of the beta estimates–impact the outcome variable? These regression estimates are used to explain the relationship between one dependent variable and one or more independent variables. The simplest form of the regression equation with one dependent and one independent variable is defined by the formula y = c + bx, where y = estimated dependent variable score, c = constant, b = regression coefficient, and x = score on the independent variable.

Three major uses for regression analysis are (1) determining the strength of predictors, (2) forecasting an effect, and (3) trend forecasting.

First, the regression might be used to identify the strength of the effect that the independent variable(s) have on a dependent variable. Typical questions are what is the strength of relationship between dose and effect, sales and marketing spending, or age and income.

Second, it can be used to forecast effects or impact of changes. That is, the regression analysis helps us to understand how much the dependent variable changes with a change in one or more independent variables. A typical question is, “how much additional sales income do I get for each additional \$1000 spent on marketing?”

Third, regression analysis predicts trends and future values. The regression analysis can be used to get point estimates. A typical question is, “what will the price of gold be in 6 months?”

2. Correlation

Correlation is a statistical measure that indicates the extent to which two or more variables fluctuate together. A positive correlation indicates the extent to which those variables increase or decrease in parallel; a negative correlation indicates the extent to which one variable increases as the other decreases.

A correlation coefficient is a statistical measure of the degree to which changes to the value of one variable predict change to the value of another. When the fluctuation of one variable reliably predicts a similar fluctuation in another variable, there’s often a tendency to think that means that the change in one causes the change in the other. However, correlation does not imply causation. There may be, for example, an unknown factor that influences both variables similarly.

Here’s one example: A number of studies report a positive correlation between the amount of television children watch and the likelihood that they will become bullies. Media coverage often cites such studies to suggest that watching a lot of television causes children to become bullies. However, the studies only report a correlation, not causation. It is likely that some other factor – such as a lack of parental supervision – may be the influential factor. Correlation can’t look at the presence or effect of other variables outside of the two being explored. Importantly, correlation doesn’t tell us about cause and effect. Correlation also cannot accurately describe curvilinear relationships.

3. Probability Distributions

In probability theory and statistics, a probability distribution is a mathematical function that provides the probabilities of occurrence of different possible outcomes in an experiment. In more technical terms, the probability distribution is a description of a random phenomenon in terms of the probabilities of events. For instance, if the random variable X is used to denote the outcome of a coin toss ("the experiment"), then the probability distribution of X would take the value 0.5 for X = heads, and 0.5 for X = tails (assuming the coin is fair). Examples of random phenomena can include the results of an experiment or survey.

A probability distribution is specified in terms of an underlying sample space, which is the set of all possible outcomes of the random phenomenon being observed. The sample space may be the set of real numbers or a set of vectors, or it may be a list of non-numerical values; for example, the sample space of a coin flip would be {heads, tails} .

Probability distributions are generally divided into two classes. A discrete probability distribution (applicable to the scenarios where the set of possible outcomes is discrete, such as a coin toss or a roll of dice) can be encoded by a discrete list of the probabilities of the outcomes, known as a probability mass function. On the other hand, a continuous probability distribution (applicable to the scenarios where the set of possible outcomes can take on values in a continuous range (e.g. real numbers), such as the temperature on a given day) is typically described by probability density functions (with the probability of any individual outcome actually being 0). The normal distribution is a commonly encountered continuous probability distribution. More complex experiments, such as those involving stochastic processes defined in continuous time, may demand the use of more general probability measures.

A probability distribution whose sample space is one-dimensional (for example real numbers, list of labels, ordered labels or binary) is called univariate, while a distribution whose sample space is a vector space of dimension 2 or more is called multivariate. A univariate distribution gives the probabilities of a single random variable taking on various alternative values; a multivariate distribution (a joint probability distribution) gives the probabilities of a random vector – a list of two or more random variables – taking on various combinations of values. Important and commonly encountered univariate probability distributions include the binomial distribution, the hyper-geometric distribution, and the normal distribution. The multivariate normal distribution is a commonly encountered multivariate distribution.

4. Confidence Intervals

In statistics, a confidence interval is a type of interval estimate, computed from the statistics of the observed data, that might contain the true value of an unknown population parameter. The interval has an associated confidence level that, loosely speaking, quantifies the level of confidence that the parameter lies in the interval. More strictly speaking, the confidence level represents the frequency (i.e. the proportion) of possible confidence intervals that contain the true value of the unknown population parameter. In other words, if confidence intervals are constructed using a given confidence level from an infinite number of independent sample statistics, the proportion of those intervals that contain the true value of the parameter will be equal to the confidence level.

Confidence intervals consist of a range of potential values of the unknown population parameter. However, the interval computed from a particular sample does not necessarily include the true value of the parameter. Based on the (usually taken) assumption that observed data are random samples from a true population, the confidence interval obtained from the data is also random.

The confidence level is designated prior to examining the data. Most commonly, the 95% confidence level is used. However, other confidence levels can be used, for example, 90% and 99%.

Factors affecting the width of the confidence interval include the size of the sample, the confidence level, and the variability in the sample. A larger sample will tend to produce a better estimate of the population parameter, when all other factors are equal. A higher confidence level will tend to produce a broader confidence interval.

5. Hypothesis testing

Hypothesis testing is an act in statistics whereby an analyst tests an assumption regarding a population parameter. The methodology employed by the analyst depends on the nature of the data used and the reason for the analysis. Hypothesis testing is used to infer the result of a hypothesis performed on sample data from a larger population.

In hypothesis testing, an analyst tests a statistical sample, with the goal of accepting or rejecting a null hypothesis. The test tells the analyst whether or not his primary hypothesis is true. If it isn't true, the analyst formulates a new hypothesis to be tested, repeating the process until data reveals a true hypothesis. Statistical analysts test a hypothesis by measuring and examining a random sample of the population being analysed. All analysts use a random population sample to test two different hypotheses: the null hypothesis and the alternative hypothesis.

The null hypothesis is the hypothesis the analyst believes to be true. Analysts believe the alternative hypothesis to be untrue, making it effectively the opposite of a null hypothesis. Thus, they are mutually exclusive, and only one can be true. However, one of the two hypotheses will always be true. Contrary to the null hypothesis, the alternative hypothesis shows that observations are the result of a real effect.

If, for example, a person wants to test that a penny has exactly a 50% chance of landing on heads, the null hypothesis would be yes, and the alternative hypothesis would be no (it does not land on heads). Mathematically, the null hypothesis would be represented as Ho: P = 0.5. The alternative hypothesis would be denoted as "Ha" and be identical to the null hypothesis, except with the equal sign struck-through, meaning that it does not equal 50%.

A random sample of 100 coin flips is taken from a random population of coin flippers, and the null hypothesis is then tested. If it is found that the 100 coin flips were distributed as 40 heads and 60 tails, the analyst would assume that a penny does not have a 50% chance of landing on heads and would reject the null hypothesis and accept the alternative hypothesis. Afterwards, a new hypothesis would be tested, this time that a penny has a 40% chance of landing on heads.

This sums up the 5 most essential and basic concepts of statistics that one must be well versed with before thinking of becoming a data scientist. Few of my favourite books which throws light on a few of these concepts are Statistics for Data Science, Business Analytics: The Science of Data - Driven Decision Making and Practical Statistics for Data Scientists: 50 Essential Concepts. However, if you are a beginner in the field of statistics and data science, or from a non-mathematical background, I would recommend you to go with Statistics without Tears: An Introduction for Non-Mathematicians.

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