Part B - Diagnostic plots

The residual fit spread for the variable stock shows two charts boxed together. These are the fit-mean and the residual. The fit-mean refers to the spread of the fitted values, and the residual graph refers to the spread of the residuals. The residuals are calculated based on the differences between the observed (actual) and the fitted (predicted). In the case of our model, the spread of the fitted is more than the spread of the residual, which means that the spread of the residual is less than the fitted, and the model can be used.

The flatter or more horizontal the shape of the residual, the better the chances of the spread of fitted being more favorably distributed:

Figure 2.12.1: Residual fit spread plot for ...

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