“CORRELATION”

Project Submitted to the ALAGAPPA UNIVERSITY in partial fulfillment

of the requirements for the award of the Degree of

MASTER OF BUSINESS ADMINISTRATION

By

K.JAYASHEELAN
(223108670004)

Research Guide

DIRECTORATE OF COLLABRATIVE INSTITUTIONS

ALAGAPPA UNIVERSITY
KARAIKUDI – 630 003
 Annexure-III

DECLARATION

I hereby declare that the project entitled “CORRELATION” submitted

for the M.B.A. Degree is my original work and the dissertation has not
formed the basis for the award of any degree, associateship, fellowship
or any other similar titles.

Place: ( K.JAYASHEELAN)

Date: Signature of theStudent

 Annexure-IV

BONAFIDE CERTIFICATE

This is to certify that the project entitled “CORRELATION” is the Bonafide

research work carried out by K.JAYASHEELAN student of M.B.A., Collaborative
Programme, Alagappa University, Karaikudi, during the year 2022-2024, in partial
fulfilment of the requirements for the award of the Degree of Master of Business
Administration and that the project has not formed the basis for the award previously of
any degree, diploma, associate ship, fellowship or any other similar title.

SIGNATURE OF

FACULTY
Introduction:

Correlation quantifies the extent to which two

quantitative variables, X and Y, “go together.” When high

values of X are associated with high values of Y, a positive

correlation exists. When high values of X are associated with

low values of Y, a negative correlation exists.

Meaning:

Correlation is a statistical measure (expressed

as a number) that describes the size and direction of a
relationship between two or more variables. A correlation
between variables, however, does not automatically mean that
the change in one variable is the cause of the change in the
values of the other variable.

Definition:

The correlation coefficient is determined

by dividing the covariance by the product of the two
variables' standard deviations. Standard deviation is a
measure of the dispersion of data from its average. Covariance
is a measure of how two variables change together.
Correlation studies and measures the direction and intensity of
relationship among variables. Correlation measures
covariation, not causation. Correlation should never be
interpreted as implying cause and effect relation. The presence
of correlation between two variables X and Y simply means
that when the value of one variable is found to change in one
direction, the value of the other variable is found to change
either in the same direction (i.e. positive change) or in the
opposite direction (i.e. negative change), but in a definite way.
For simplicity we assume here that the correlation, if it exists,
is linear, i.e. the relative movement of the two variables can be
represented by drawing a straight line on graph paper.

According to L.R.Connor,’’When two or more

quantities vary in sympathy so that movements in the one tend
to be accompanied by corresponding movements in the others
,then they are said to be correlated.’’
According to Ya Lun Chow ,’’ Correlation
analysis attempts to determine the degree of relationship
between variables.’’.
According to W.L.King,’’Correlation means
that between two series or groups of data ,there exists some
casual connection”.
Importance of correlation:

 The study of Correlation shows the

direction and degree of relationship
between the variables .This has helped the
formation of different laws and concept in
economic theory.
 It is very helpful in understanding
economic behaviour. This is helpful in
studying factors by which economic events
are affected.
 Study of correlation reduces the range of
uncertainties in matter of prediction.
 Helpful in investigation and research.
 It is also helpful in policy formulation.
Types of correlation:

Correlation can be:

 Positive and Negative Correlation.
 Linear and Non- Linear Correlation.
 Simple, Multiple and Partial Correlation.
Positive correlation:
When two variables X and Y move in the same
direction, i.e., when one increases the other also increases and
when one decreases the other also decreases, the correlation
between the two is positive. For example, Price and supply of
a commodity.
Negative correlation:
When two variables X and Y move in the opposite
direction, the correlation is negative. For example, reverse
relationship between price and demand of a commodity.

Linear Correlation:
 If the ratio of change between two variables is
uniform, it is called Linear Correlation. If the changes are
plotted on a graph paper, their relationship will be indicated by
a straight line.

Non-Linear Correlation:
If the ratio of change between two variables is not
uniform, It is called Non-Linear Correlation. If these changes
are plotted on a graph paper, they will not form a straight line
but a curve.
Kinds of correlation:

 Simple correlation
 Multiple correlation
 Partial correlation.
Simple Correlation:
Relationship between two variables is known
as Simple Correlation. For example, relationship between price
and demand of a commodity.

Multiple Correlation:
When the relationship among three or more
than three variables is studied simultaneously, it is called
Multiple Correlation. For example, agricultural production
depends on rainfall, amount of mannures, seeds etc. This will
be called Multiple Correlation.
Partial Correlation:
Relationship between two variables is
established keeping other variables constant. For example, If
we study the relationship between degree of rainfall and
agricultural production assuming amount of fertilizers, quality
of seeds as constant, it will be known as Partial Correlation.
Hypothesis test:

The sample correlation coefficient r is the estimator of

population correlation coefficient r (rho). Recall that relations
in samples do not necessarily depict the same in the population.
For example, in Figure , the population of all dots demonstrates
no correlation. If by chance the encircled points were sampled,
an inverse association would appear. Thus, some samples
cannot be relied on.

The null and alternative hypotheses are

where SEr represents the standard error the correlation
coefficient:

Under the null hypothesis, this t statistic has n - 2 degrees of

freedom. Test results are converted to a p value before
conclusions are drawn.
Higher degree of positive correlation:

Karl Pearson's Coefficient of Correlation:

Pearson’s ‘r’ is the most common correlation

coefficient.
Karl Pearson’s Coefficient of Correlation
denoted by- ‘r’ The coefficient of correlation ‘r’ measure the
degree of linear relationship between two variables say x & y.
 Karl Pearson’s Coefficient of Correlation denoted
by- r -1 ≤ r ≥ +1
Degree of Correlation is expressed by a value of
Coefficient
Direction of change is Indicated by sign ( - ve)
or ( + ve)
When deviation taken from actual mean: r(x, y)=
Σxy / √ Σx² Σy²
When deviation taken from an assumed mean:
r = N Σdxdy - Σdx Σdy
√N Σdx²-( Σdx)² √N Σdy²-( Σdy)²
Procedure for computing the correlation coefficient :

Calculate the mean of the two series ‘x’ &’y’

Calculate the deviations ‘x’ &’y’ in two series
from their respective mean.
Square each deviation of ‘x’ &’y’ then obtain
the sum of the squared deviation i.e. ∑ x 2 & . ∑ y
2
Multiply each deviation under x with each
deviation under y & obtain the product of
‘xy’.Then obtain the sum of the product of x , y
i.e.∑xy
Substitute the value in the formula.
Interpretation of Correlation Coefficient (r)
The value of correlation coefficient ‘r’ ranges
from -1 to +1
 If r = +1, then the correlation between the two
variables is said to be perfect and positive
If r = -1, then the correlation between the two
variables is said to be perfect and negative
If r = 0, then there exists no correlation
between the variables
Assumptions of Pearson’s Correlation Coefficient :
There is linear relationship between two
variables, i.e. when the two variables are plotted on a scatter
diagram a straight line will be formed by the points.
Cause and effect relation exists between
different forces operating on the item of the two variable series.
Limitation of Pearson’s Coefficient
Always assume linear relationship
Interpreting the value of r is difficult.
Value of Correlation Coefficient is affected
by the extreme values.
Time consuming methods
Coefficient of Determination:
The convenient way of interpreting the
value of correlation coefficient is to use of square of coefficient
of correlation which is called Coefficient of Determination.
The Coefficient of Determination = r 2.
Suppose: r = 0.9, r2 = 0.81 this would mean
that 81% of the variation in the dependent variable has been
explained by the independent variable.
 The maximum value of r2 is 1 because it is
possible to explain all of the variation in y but it is not possible
to explain more than all of it.
Coefficient of Determination = Explained
variation / Total variation.

Advantages of Correlation:

1. Neither variable goes through a manipulative process:

When you choose a correlational research study
to review variables, then neither one goes through a
manipulative process. It is the distinctive feature of this
method. Researchers could observe participants in a public
setting or a closed environment because it doesn’t matter where
or how the variables get measured.
2. Two different data collection methods are available with
correlational research:
The data gathered from a correlational
research study can come from either naturalistic observation
or archival data. The first option is a type of field research
where those responsible for the work might observe situations
in real-life scenarios as unobtrusively as possible. When
people know that they are under observation, then there is a
significant risk that their behaviors will change. If the
participants remain anonymous with the work conducted in a
public setting, then it is an ethical approach.
The second option relies on the use of collected data from
previous research efforts. The information is straightforward,
giving researchers access to specific points that can lead to a
greater understanding of the potential variables involved in
each situation.

3. The results from correlational research are more

applicable:
Because a correlational research study occurs in
real-life situations, the data that gets gathered from this work
is typically more applicable to everyday encounters. You
don’t need to attempt to extrapolate the findings from a
laboratory setting into something that works into the routine
of the average person.
Even if the researchers don’t know the individuals or
situations being studied with correlational research, their
findings are still applicable to the scenarios under review.

4. It offers a beneficial starting position for research:

When a correlational research study begins to
look at specific relationships or phenomena to see if
connections are present, then the variables provide an
excellent starting position to begin the review. Each variable
creates a unique data set that can work in several different
ways with known and unknown relationships.
It is not unusual for researchers to create new opportunities
for future studies because of the amount of data that becomes
available. These studies provide a lot more information to
review than a simple experiment would offer in most
situations.

5. Researchers can determine the direction and strength of

each relationship:
The variables that get studied with
correlational research help us to find the direction and
strength of each relationship. This advantage makes it
possible to narrow the findings in future studies as needed to
determine causation experimentally as needed. It can be an
experiential process that involves direct observation or occur
through data insights with an additional review.
This advantage creates the possibility of discovering new
relationships existing between phenomena that don’t seem to
have existing connections. That process helps us to discover
more about the world and specific situations than if other
research methods were used.

6. A survey method is helpful in correlational research:

Some correlational research study methods can
benefit from the use of surveys to collect information on a
specific topic. Since the variables being studied still aren’t
under the control of the researchers, then it can reveal the
presence of a relationship between them. That makes it fast,
easy, and affordable to start looking for potential outcomes
and results when studying specific contact points.
7. The results of a correlational research study are easy to
classify:
A correlational research study uses what is
called the “correlation coefficient” to measure the strength of
the relationship between the variables. It can range from 1.00
to -1.00. These figures create three potential definition
outcomes for the work being performed.

Disadvatages of correlation:

1. Correlational research only uncovers relationships:

The benefit of a correlational research study is

that it can uncover relationships that may have not been
previously known. What it does not provide is a conclusive
reason for why that connection exists in the first place. All we
can do with the information is study the connections between
phenomena to see how each one influences the other.
Knowing that one change can create additional alternations
can be beneficial when looking for unique outcomes, but it
fails to answer the question of “why” that is sometimes
necessary for research.
Correlation does not equate to causation when using this study
method.

2. It won’t determine what variables have the most

influence:
A correlational research study can help to
determine the connections that variables share with a specific
phenomenon. What this work cannot produce is information
regarding which variable is responsible for influencing the
other. You might know that households with more wealth also
have higher education levels, but you can’t determine if it is
the education that leads to additional wealth.
That means the correlation for a specific variable must be
assumed or sent to a different research method to collect the
necessary data.

3. Correlational research can be a time-consuming

process:
Although the benefits of a correlational research
study can be tremendous, it can also be expensive and time-
consuming to achieve an outcome. The only way to collect
data is through direct interactions or observation of the
variables in question. That means numerous scenarios must
receive a thorough look before it is possible to determine an
accurate coefficient. The naturalistic observation method sees
this disadvantage most often, but it can apply to every effort
in this category.
4. Extraneous variables might interfere with the
information:
There is no guarantee that additional influences
will stay out of the correlational research study. It is possible
for unique outcomes to exist that interfere with the work.
Going back to the example of the child and the ice cream
truck, the presence of heavy winds might make it seem like
the vehicle is closer or further away than it actually is.
Another issue that fits into this disadvantage involves the
awareness of the subjects of an observer. People act different
when they know that someone is watching, so it can skew the
results in either direction. This issue even impacts surveys
because some people try to provide or deny data to create
specific outcomes.

5. Outcomes can be adversely impacted by the quality of

the work:
The quality of the work performed during a
correlational research study will determine the usefulness of
the data gathered. If the survey questions do not provide
enough of a trigger to generate information, then the time and
money spent on the effort gets wasted. Even when there is
some flexibility in the structure of the study, a lack of
representation in the selected sample can produce inferior
results that could lead researchers down an incorrect path of
study.

Conclusion:

The correlation co-effient shows how strong the

linear relationship between two variables. If the correlation is
positive, that means both the variables are moving in same
direction. Negative correlation implies, when one variable
increases the other variable decreases. Correlation shows the
conection and differences of two varriables or products.