Ordinary least squares
Quantitative Finance glossary · Probability, Statistics & Linear Algebra
Definition
The estimation of a linear regression by minimizing the sum of squared residuals.
Ordinary least squares in plain English
Ordinary least squares (OLS) is the standard way to draw the 'best' straight line through a cloud of data points, like predicting a house's price from its size. For any line you might draw, each point sits some vertical distance above or below it; that gap is the 'residual,' or how wrong the line is for that point. OLS picks the one line that makes the total of all those gaps-squared as small as possible (squaring keeps positives and negatives from cancelling and punishes big misses harder). It's the workhorse behind 'line of best fit' in almost every field.
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