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Answer :
To effectively address multicollinearity, consider techniques like dropping correlated variables, using regularization techniques like Ridge or Lasso regression, or using dimensionality reduction methods like Principal Component Analysis.
High Correlation between Independent Variables: If there is a high correlation (close to +1 or -1) between two or more independent variables, it might indicate multicollinearity. This means that these variables provide similar information to the model, making it difficult to distinguish their individual effects.
Inconsistent Sign and Magnitude of Coefficients: In a multiple regression model, if the signs and magnitudes of the coefficients of the independent variables change dramatically when adding or removing other variables from the model, it could be a sign of multicollinearity.
Unstable Estimates: Small changes in the data or minor adjustments to the model can lead to significant changes in the estimated coefficients. This instability suggests that the model is sensitive to variations in the data and could be due to multicollinearity.
Keep in mind that to conclusively diagnose multicollinearity, you might want to calculate the Variance Inflation Factor (VIF) for each independent variable. High VIF values (typically greater than 10) often indicate multicollinearity.
Therefore, To effectively address multicollinearity, consider techniques like dropping correlated variables, using regularization techniques like Ridge or Lasso regression, or using dimensionality reduction methods like Principal Component Analysis (PCA).
To study more about Principal Component Analysis:
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