Correlation Analysis

The relationship between two ore more variable

Types of Correlation
Type I: Based on the direction of change of variables
Correlation is classified into two types based on the direction of change of the variables: positive
correlation and negative correlation.

● Positive Correlation:
When the variables change in the same direction, the correlation is said to be positive. The
sign of the positive correlation is +1.
Example: When income rises, so does consumption and when income falls, consumption
does too.
● Negative Correlation:
When the variables move in opposite directions, the correlation is negative. The sign of
negative correlation is –1.–1.
Example: Height above sea level and temperature are an example of a negative association. It
gets colder as you climb the mountain (ascend in elevation) (decrease in temperature).

Type II: Based upon the number of variables studied

● Simple Correlation:
The study of only two variables is referred to as simple correlation. The usage of fertilisers
 and paddy yield is an example of a simple connection, as paddy yield is dependent on
fertiliser use.
● Multiple Correlation:
Multiple correlations is defined as the study of three or more variables at the same time.
Crimes in a city, for example, maybe influenced by illiteracy, growing population, and
unemployment, among other factors.
● Partial Correlation:
If there are three or more variables, but only two are considered while keeping the other
variables constant, the correlation is said to be partial. For example, while controlling for
weight and exercise, you would wish to investigate if there is a link between the amount of
food consumed and blood pressure.
Type III: Based upon the constancy of the ratio of change between the variables
Correlation is classified into two types based on the consistency of the ratio of change between the
variables: linear correlation and non-linear correlation.

● Linear Correlation: Unit change in the value of one variable, there is a constant change
in the value of other variable
The correlation is said to be linear when the change in one variable bears a constant ratio to
the change in the other.
Example: Y=a+bxY=a+bx
● Non-Linear Correlation: Amount of change in the value of one variable do not bear any
constant change in the value of other variable
If the change in one variable does not have a constant ratio to the change in the other
variables, the correlation is non-linear.
Example: Y=a+bx2Y=a+bx2

Correlation Coefficient (r)

is a number that indicates the strength (magnitude) and direction of statistical relationship between
two variables.

• The strength of the relationship is determined by the closeness of the points to a straight line
when a pair of values of two variables are plotted on a graph. A straight line is used as the frame of
reference for evaluating the relationship.

• The direction is determined by whether one variable generally increases or decreases when the
other variable increases.
Features of Correlation Coefficient

1. The sign of the correlation coefficient indicates the direction of the relationship. A positive
correlation denoted by + (positive sign) indicates that the two variables tend to increase (or
decrease) together (a positive association) and a negative correlation by – (minus sign)
indicates that when one variable increases the other is likely to decrease (a negative
association).
2. The values of the correlation coefficient range from + 1 to – 1 regardless of the units of
measurements of x and y.
3. The value of r = +1 or –1 indicates that there is a perfect linear relationship between two
variables, x and y. A perfect correlation implies that every observed pair of values of x and y
falls on the straight line.
4. The magnitude of the correlation indicates the strength of the relationship, which is the
overall closeness of the points to a straight line. The sign of the correlation does indicate
about the strength of the linear relationship.
5. Correlation coefficient is independent of the change of origin and scale of reference. In other
words, its value remains unchanged when we subtract some constant from every given
value of variables x and y (change of origin) and when we divide or multiply by some
constant every given value of x and y (change of scale).
6. Correlation coefficient is a pure number independent of the unit of measurement.
7. The value of r=0 indicates that the straight line through the data is exactly horizontal, so that
the value of variable x does not change the predicated value of variable y.
8. The square of r, i.e., r 2 is referred to as coefficient of determination

Questions

1. The following table gives the distribution of items of production and also the relatively
defective items among them, according to size groups. Find the correlation coefficient
between size and defect in quality.

Size No of Item No of defective items

15-16 200 150

16-17 270 162

17-18 340 170

18-19 360 180

10-20 400 180

20-21 300 114

2. The following table gives indices of industrial production and number of registered
unemployed people (in lakh). Calculate the value of the correlation coefficient.
Year : 1991 1992 1993 1994 1995 1996 1997 1998
Index of Production : 100 102 104 107 105 112 103 99
Number Unemployed : 15 12 13 11 12 12 19 26