ECONOMICS

CLASS XI

CORRELATION

Basic Concepts
 Introduction

Many times, we come across problems which involve

two or more variables.

Example:
 Rainfall and production of rice
 Road accidents and number of cars
 Sales and profit etc.
We find that there is always some relationship between
the two variables.

When one variable changes, the other also changes in

the same or in the opposite direction, we say that the
two variables are correlated.
 Correlation

A single number that describes the degree of relationship

between two variables.

Relation between income and

consumption. With rise in
income consumption increases
and vice-versa
 Significance

 Determines the degree of relationship between

variables. By knowing one variable other
variables can be chalked out.

 Helps in measuring the relationship between

the two variables
 Helps in formation of laws and concepts in economic
theory

 Economists establish relationship between the

variables like demand and supply, price level etc.
 Helps in framing policies

 Helps in business activities to take fruitful decisions

 M EM BER e f fect
RE s u r e cause a n d
e sn't m e a
a t io n d o
Correl n s i t y of
nd i n t e
relation. e g r e e a
s u r e s o nly d
It mea . d t o low
h i p is r el a t e
relations a i n fa l l p r od u c tion
m p le : Lo w r i ty . B u t low
p oor
Exa l pr o d u c t i v
s s uc h a s
i c u lt u r a r e a s o n of
agr t o o t h er e t h o d s
due n al m
may be e e ds , t r a d i ti o
o f s
qualit y e t c.
l t u r e
agricu
 Types

Positive correlation Negative correlation

Y Y

O O
X X
Positive correlation: Variables move together in
same direction
Example: Advertising and sales

Negative correlation: Variables move in opposite

direction
Example: Higher the price of petrol less will be its
demand
 Properties

 The value of correlation (r) always lies between

–1 to + 1 (– 1 < r < + 1).

 Value of r lies between 0 and 1 Positive correlation

 Value of r lies between 0 and -1 Negative

correlation

 r=0 No correlation
-1 0 +1

Perfect No Correlation Perfect

Negative Positive
Correlation Correlation
 Methods of Studying Correlation

Scatter Diagram Spearman’s Rank

Correlation

Karl Pearson’s
Coefficient of
Correlation
 Scatter Diagram

Simplest way of determining the relationship between two

variable in a special type of dotted chart

O
X
 Types of Scatter Diagram

1 Positive Correlation

2 Negative Correlation

3 Perfect Negative Correlation

4 Perfect Positive Correlation

5 No Correlation
 Positive Correlation

As the value of one variable increases, the

value of other variable also increases.

Example: Temperature and sale of cold drinks.

 Negative Correlation

As the value of one variable increases, the value of

other variable also decreases.
or
Two variables move in different direction
Example: Watching TV and marks scored.
Students spending more time watching TV tend to
score less marks in class and vice-versa.
 Perfect Positive Correlation

Change in two variables in equal proportion in

the same direction

O
X
 Perfect Negative Correlation

Change in two variables in equal proportion

in an inverse direction

O
X
 No Correlation

The points are randomly scattered on graph

Example: Rainfall in India and production of cars in

Germany
Rainfall

Production of cars
 Your Turn

Following are the details of heights and weights of 5

students of a class, draw a scatter diagram and
determine the form of association.

Weight 50 65 60 50
(Kg)
Height 62 72 70 58
(inches)
 Karl Pearson’s Coefficient of
Correlation

 A mathematical method for

measuring the linear relationship
between the variable X and Y

 It indicates the quantitative

relationship between two
variables.
Karl Pearson, a pioneer of statistics,
developed ideas of correlation and
regression that have been widely
applied across different branches of
science.
 Methods of Calculation

1. Direct method

r=
∑ xy
∑ x ∑y2 2

2. Indirect method

( ∑ )
dx∑ ×( dy )
∑dxdy −
N
r=
( ∑dx ) ∑ ( )
2 2
dy
∑dx 2
− ∑
N
× −
dy 2

N
 Example: Calculate the correlation between the
weights and heights of 9 students by direct
method.

Weight 48 49 50 51 52 53 54 55 56
(Kg)
Height 100 105 105 104 110 115 125 130 132
(cm)
 Weight (X) Height (Y)

Calculate mean for X and Y 48 100

49 105

50 105
∑X ∑Y
X= Y =
51 104
N N 52 110

53 115
468 1026
= = 54 125
9 9 55 130

56 132
= 52 = 114
∑ X = 468 ∑Y =1026
 X Y
x= X −Xy = Y −Y xy x2 y2
48 100 -4 - 14 56 16 196

49 105 -3 -9 27 9 81

50 105 -2 -9 18 4 81

51 104 -1 - 10 10 1 100

Here, 52 110 0 -4 0 0 16

53 115 1 1 1 1 1
X = 52
54 125 2 11 22 4 121

55 130 3 16 48 9 256
Y = 114
56 132 4 18 72 16 324

∑ xy = 254 ∑ x 2
= 60 ∑ y 2
= 1176
 ∑ xy
r=
∑x ∑y
2 2

254
=
60 × 1176

= .95

Positive correlation between weight and height

 Example: Calculate Karl Pearson’s correlation
between price and demand by indirect method.

Price (Rs) 14 16 17 18 19 20 21 22 23

Demand 84 78 70 75 66 67 62 58 56
(Quantity)
Price Demand dx = X − A dy = Y − A
(X) (Y)
( A = 20) ( A = 70)
14 84 -6 14

16 78 -4 8

17 70 -3 0

18 75 -2 5

19 66 -1 -4

20 67 0 -3

21 62 1 -8

22 58 2 -12

23 56 3 -14

∑ dx= −12 ∑ dy = −14

dx = X − A dy = Y − A dx2 dy 2 dx. dy
-6 14 36 196 -84

-4 8 16 64 -32

-3 0 9 0 0

-2 -5 4 25 10

-1 -4 1 16 4

0 -3 0 9 0

1 -8 1 64 -8

2 -12 4 144 -24

3 -14 9 196 -42

∑ dx= −12 ∑ d y = −14 ∑ d x = 8 0 ∑ dy = 714 ∑ dy.dy = −176

2 2
 ∑dx∑ dy
∑dx .dy -
r= N
( ∑dx∑
) (dy )
2 2
∑
∑dx −
2
−
dy 2

N N

( −12)× −
( 14)
( −176)−
r= 9
( −12 ) ( )
2 2
− 14
80 − −
714
9 9
 −176− (18.66)
r=
144 196
80 − 714−
9 9

−176− (18.66)
r=
64 692.33

−194.66
r=
8 ×26.31

−194.66
r=
210.48

r =− .92
Itisacaseof strong negativecorrelation .
 Your Turn

Calculate correlation of coefficient between

variable X and Y.

Variable (X) 6 2 4 9 1 3 5 8

Variable (Y) 13 8 12 15 9 10 11 16
 Spearman’s Rank Correlation

 Helps in calculating the correlation

of qualitative variables

 Based on ranks of items rather than

their actual values

 Can be used even when actual

values are unknown
Example: To know the correlation
between honesty and wisdom, one
can use this method by assigning
ranks to items.
Charles Edward Spearman, an
English psychologist Known for
work in statistics and for
Spearman's rank correlation
coefficient.
 Formula for Different Cases

When ranks are given

When ranks are not given

6 ∑D2
rk =1−
N 3 −N

N =Number of pairs of observations

∑ =Total of squares of the

D 2

differences of corresponding ranks

 Formula for Different Cases

When ranks are equal or repeated

 1 1 
6  ∑ D 2 + (m31 − m1 ) + (m3 2 − m2 ) + .... 
12 12
rk =1 −  
N3 − N

m = Number items of equal ranks

 When ranks are given

In a singing competition, two judges accorded following

ranks to 10 contestant.

Judge A 10 8 5 3 6 1 2 9 7 4

Judge B 10 6 5 4 7 9 8 2 1 3
 JUDGE AJUDGE BD =R1 – R2 D2

10 10 0 0

8 6 2 4

5 5 0 0

3 4 -1 1

6 7 -1 1
Here, 1 9 -8 64

2 8 -6 36
R1=Row 1
9 2 7 49
R2= Row 2 7 1 6 36

4 3 1 1

∑ =192
D 2
 6 ∑D 2
rk =1−
N 3 −N

6 (192)
=1− 3
10 −10

1152
=1−
990

=1− 1 .16

=− 0.16
 When ranks are not given

Calculate Spearman’s coefficient of correlation between

marks assigned to 7 students by tow judges in a poem
competition.

Judge A 25 12 40 20 8 15 10

Judge B 12 10 18 16 6 25 15
Judge A Rank Judge Rank
(R1) B (R2) D = R1- R 2 D2
25 2 12 5 -3 9

12 5 10 6 -1 1

40 1 18 2 -1 1

20 3 16 3 0 0

8 7 6 7 0 0

15 4 25 1 3 9

10 6 15 4 2 4

∑ = 24
D 2
 6 ∑D
rk =1−
N −N
3

6(24)
=1− 3
7 −7

144
=1− 3
7 −7

144
=1−
336
 =1− 0.43

rk =0.57

Positive correlation
 Your Turn

Marks of 10 students in Hindi and English are given below.

Find the correlation between the two subjects.

Hindi 80 38 95 30 74 84 91 60 66 40

English 85 50 92 58 70 65 88 56 52 46
 When ranks are equal or repeated

Marks of 7 students in accounts and statistics out

of 50 marks are given.

Subject Marks
Accounts 40 42 35 40 47 42 30
Statistics 38 45 42 35 30 40 35
Accounts Statistics R1 R2 D = R1- R 2 D2
37 38 3 4 -1 1

42 45 5.5 7 -1.5 2.25

35 42 2 6 -4 16

40 35 4 2.5 1.5 2.25

47 30 7 1 6 36

42 40 5.5 5 0.5 0.25

30 35 1 2.5 -1.5 2.25

∑ D = 60
2
  1 1 
6  ∑ D + (m 1 − m1 ) + ( m 2 − m2 ) + .... 
2 3 3

 12 12 
rk =1 −
N3 − N

Here, m = number of items of equal ranks

 1 3 1 3 
6 60 + ( 2 − 2) + ( 2 − 2) + ....
 12 12 
=1 −
73 − 7

 1 1 
6 60 + ( 6) + ( 6) + ....
 12 12 
=1 −
73 − 7
  1 1
6 60 + + 
 2 2
=1 −
336

6 [ 61]
=1 −
336

366
=1 −
336

=1 − 1.08

r = − 0.08

Negative correlation
 Now, on your FINGER TIPS…

• Qualitative Variables: Those variables which cannot

be measured such as bravery, wisdom, beauty etc.

• Correlation: A single number that describes the

degree of relationship between two variables. When

both the variables move in same direction they are

said to the positively correlated and when move in
opposite direction, it is called negative correlation.

• Scatter Diagram: It is a graphic method of studying

correlation.
• Ranking: Allotment of rank on the basis of ascending
or descending order

• Negative correlation: When the two variables move

in opposite direction, it is called negative correlation.
With an increase in the value of one variable there is
a decrease in value of other.
A presentation by