8/18/2012

Introduction
CORRELATION

Correlationanalysisdealswiththeassociationbetween
twoormorevariables.

BusinessStatistics 2012

Correlationanalysisattemptstodeterminethedegree
oflinearrelationshipbetweenthetwovariables.
Correlationanalysisisusedtomeasurestrengthofthe
association(linearrelationship)betweentwovariables

Dr.Gunjan Malhotra

Correlationisonlyconcernedwithstrengthofthe
relationship

gmalhotra@imt.edu;mailforgunjan@gmail.com

Nocausaleffectisimpliedwithcorrelation

FeaturesofCorrelationCoefficient,r

Methods of studying correlation

Unitfree

Rangesbetween1and1
Thecloserto1,thestrongerthenegative
linearrelationship

Scatterdiagrammethod
Graphicmethod
KarlPearsonscoefficientofcorrelation
Spearmansrankcorrelationcoefficient

Thecloserto1,thestrongerthepositivelinear
relationship
Thecloserto0,theweakerthelinear
relationship

Scatter Plots of Data with Various

Correlation Coefficients
Y

r=0

r =

r=+1

r=.6

r=

r=1

r=+.3

Correlation coefficient, r

r=0

N XY ( X )( Y )
[N X ( X ) ][N Y ( Y )
2

XY

( X )( Y )
n

( X )
( Y )

n
n
2