B.

Com II Year Subject- Business statistics

SYLLABUS
Subject –Business Statistics

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B.Com II Year Subject- Business statistics

UNIT — I
STATISTICS

The word “Statistics” of English language has either been derived from the Latin word status or Italian
word statistics and meaning of this term is “An organised political state.

Meaning: The science of collecting, analysing and interpreting such data or Numerical data relating to
an aggregate of individuals.
E.g:- Statistics of National Income, Statistics of Automobile Accidents, Production Statistics, etc.
Definition: - “The classified facts relating the condition of the people in a state specially those facts
which can be stated in members or in tables of members or in any tabular or classified arrangements.”

-Webster
“Statistics may be regarded as (i) the study of population (ii) The study of variation (iii) The study of
method of reduction of data”
-R.A. Fisher.
The science of statistics is the method of judging collective, natural or social phenomena from the
results obtained by the analysis of an enumeration or collection of estimates.
-W I king
Nature /Features /Characteristics of statistics
• It is an aggregate of facts.
• It is numerically expressed.
• It is estimated according to reasonable standard of accuracy.
• It is collected for pre-determined purpose.
It is collected in a systematic manner

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Nature /Features /Characteristics of statistics

It is an aggregate of facts

It is estimated according to reasonable standard of accuracy

It is numerically expressed

Analysis of multiplicity of causes.

It is collected for pre-determined purpose

It is collected in a systematic manner

Statistical Methods
•By this method we mean methods
specially adapted to the elucidation of
quantitative data affected by a
multiplicity of causes. Few Methods
are:-
•Collection of Data (2) Classification (3)
Tabulation (4) Presentation (5)
Analysis (6) Interpretation (7)
Forecasting.
Theoretical
•: Mathematical theory which is Applied
the basis of the science of
•It deals with the application
statistics is called theoretical
of rules and principles
statistics.
developed for specific
Division problem in different
disciplines. Eg: - Time series,
of Sampling, Statistical Quality
control, design of
Statistics experiments.

Division of Statistics

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Theoretical Statistical Methods Applied

Theoretical: Mathematical theory which is the basis of the science of statistics is called theoretical
statistics.
Statistical Methods: By this method we mean methods specially adapted to the quantitative data
affected by a multiplicity of causes.
Few Methods are:-
(1) Collection of Data (2) Classification (3) Tabulation (4) Presentation (5) Analysis (6)
Interpretation (7) Forecasting.
Applied: - It deals with the application of rules and principles developed for specific problem in
different disciplines.
Eg: - Time series, Sampling, design of experiments.

Functions of Statistics:-
• It presents facts in a definite form.
• It simplifies mass of figures
• It facilitates comparison
• It helps in prediction
• It helps in formulating suitable & policies.

Scope of Statistics:-
1. Statistics and state or govt.
2. Statistics and business or management.
• Marketing
• Production
• Finance
• Banking
• Control
• Research and Development
3. Statistics and Economics
• Measures National Income
• Money Market analysis
• Analysis of competition, monopoly, oligopoly,
• Analysis of Population etc.
4. Statistics and science
5. Statistics and Research

Limitations:-
(i) It is not deal with items but deals with aggregates.
(ii) Only on expert can use it
(iii) It is not the only method to analyze the problem.
(iv) It can be misused etc.
STATISTICAL INVESTIGATION
Meaning: In general it means as a statistical survey.
In brief, it is Scientific and systematic collection of data and their analysis with the help of various
statistical method and their interpretation.

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STAGES OF STATISTICAL INVESTIGATION:-

Meaning: In general it means as a statistical survey.
In brief. Scientific and systematic collection of data and their analysis with the help of various statistical
method and their interpretation.

Stages of Statistical Investigation:-

 Planning of Investigation
 Collection of Data
 Editing of Data
 Presentation of Data
(a) Classification
(b) Tabulation
(c) Diagrams
(d) Graphs
 Analysis of Data
 Interrelation of Data or Report Preparation
Types of Statistical Investigation:-
1. Experiment or survey investigation
2. Complete or sample investigation
3. Official, semi-official, Non official investigation
4. Confidential or open investigation
5. General purpose and specific purpose investigation
6. Original or repetitive investigation.

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Interrelation
Presentation of Data or
and analysis of Report
Data Preparation
Editing of Data

Collection of
Data

Planning
of
Investigati
on

Experiment
or survey
investigation

Original or Confidential
repetitive or open
investigation investigation

Types of
Statistical
Investigation

General
purpose and Complete or
specific sample
purpose investigation
investigation
Official,
semi-official,
Non official
investigation

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PROCESS OF DATA COLLECTION

Data: - A bundle of Information or bunch of information.
Data Collection: Collecting Information for some relevant purpose & placed in relation to each other.
Types of Data:-
1. Raw Data:- When we collect data through schedules and questionnaires or some other method eg:-
Classification, tabulation etc.
2. Processed Data:- When we use the above raw data for application of different methods of analysing
of data. Like using correlation, Z-test, T-test on data. That will be known as processed data.
Sources of Data Collection:-
3. Internal Data: - When data is collected by problem the internal source for any specific
purpose.
4. External Data: - This type of data collected by the external source.
5. Primary Data: - It is original and collected first time. it is like raw material and it is required large
sum of money, energy and time.
6. Secondary Data: - Secondary data are those already in existence and which have been collected for
some other purpose for answering of the question at hand.
7. Qualitative Data: - Which can not be measurable but only there presence and absence in a group of
individual can be noted are called qualitative data.
8. Quantitative Data: - The characteristics which can be measured directly are known as quantitative
data. It is large amount of data.

Methods of Data Collection:- (Primary Data)

- Direct Personal Interviews
- By observation
- By Survey
- By questionnaires

Difference between Primary and secondary data:-

Points Primary Data Secondary Data
1. Originality Primary data are original i.e., Secondary data are not original, i.e..,
collected first time. they are already in existence and are
used by the investigator.
2. Organisation Primary data are like raw material. Secondary data are in the from of
finished product. They have passed
through statistical methods.
3. Purpose Primary data are according to the Secondary data are collected for some
object of investigation and are used other purpose and are corrected before
without correction. use.
4. Expenditure The collection of primary data Secondary data are easily available from
require large sum, energy and time. secondary sources (published or
unpublished).

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Collection of Data: - It means the methods that are to be employed for obtaining the required
information from the units under investigations.

Methods of Data Collection:- (Primary Data)

- Direct Personal Interviews
- By observation
- By Survey
- By questionnaires

Preparation of Questionnaires:-
This method of data collection is quit popular, particularly in case of big enquires, it is adopted by
individuals, research workers. Private and public organization and even by government also.
A questionnaires consists of number of question printed or type in a definite order on a form or set of
forms. The respondents have to answer the question on their own.

Importance:-
i. Low cost and universal
ii. Respondents have adequate time to respond
iii. Fairly approachable

Demerits:-
(i) Low rate of return
(ii) Fill on educated respondents

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(iii) Slowest method of Response

Preparation of Questionnaires: - It is considered as the heart of a survey operation. Hence it should

be very carefully constructed. If it is not properly set up and carefully constructed.
Step I :- Prepare it in a general form.
Step II :- Prepare sequence of question.
Step III :- Emphasize on question formulation and wordings
Step IV :- Ask Logical and not misleading questions.
Step V :- Personal questions should be left to the end.
Step VI :- Technical terms and vague expressions should be availed classification and
Tabulation of Data

Basis of Primary
Secondary Data
Difference Data

Secondary data are not original, i.e..,

Primary data are original i.e.,
Originality they are already in existence and
collected first time.
are used by the investigator.

Secondary data are in the from of

Organisation Primary data are like raw material. finished product. They have passed
through statistical methods.

Primary data are according to the Secondary data are collected for
Purpose object of investigation and are used some other purpose and are
without correction. corrected before use.

Secondary data are easily available

The collection of primary data
Expenditure from secondary sources (published
require large sum, energy and time.
or unpublished).

Precautions are not necessary in the Precautions are necessary in the use
Precautions
use of primary data. of secondary data.

Steps in construction of a questionnaire : It is considered as the heart of a survey operation.

Hence it should be very carefully constructed

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Technical
Emphasize Personal
Ask Logical terms and
Prepare it in Prepare on question questions
and not vague
a general sequence of formulation should be
misleading expressions
form question and left to the
questions. should be
wordings end.
avoided.

Example :

Classification & Tabulation of Data

After collecting and editing of data an important step towards processing that classification. It is
grouping of related facts into different classes.
Types of classification:-
i. Geographical:- On the basis of location difference between the various items. E.g. Sugar Cave,
wheat, rice, for various states.

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ii. Chronological:- On the basis of time

e.g.-
Year Sales
1997 1,84,408
1998 1,84,400
1999 1,05,000
iii. Qualitative classification: - Data classified on the basis of some attribute or quality such as,
color of hair, literacy, religion etc.

iv. Quantitative Classification: - When data is quantify on some units like height, weight, income,
sales etc.
Classification & Tabulation of Data
After collecting and editing of data an important step towards processing that classification. It is
grouping of related facts into different classes.
Types of classification:-
v. Geographical:- On the basis of location difference between the various items. E.g. Sugar Cave,
wheat, rice, for various states.
vi. Chronological:- On the basis of time
e.g.-
Year Sales
1997 1,84,408
1998 1,84,400
1999 1,05,000
vii. Qualitative classification: - Data classified on the basis of some attribute or quality such as,
colour of hair, literacy, religion etc.

Population
viii. Quantitative Classification: - When data is quantify on some units like height, weight, income,
sales etc.
Tabulation of Data
A table is a systematic arrangement of statistical data in columns and Rows.
Part of Table:-
1. Table number
2. Title of the Table - A title is the main heading written in capital shown at the top of the
table.
Caption
3. Stub - The horizontal headings and sub heading of the row are called row captions Body
of the table
4. Head note
5. Foot Note - It appears immediately below the body of the table providing the further
additional explanation.

Types of Table:-
(i) Simple and Complex Table:-
(a) Simple or one-way table:-
Age No. of Employees

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25 10
30 7
35 12
40 9
45 6

(b) Two way Table

Age Males Females Total
25 25 15 40
30 20 25 45
35 24 20 44
40 18 10 28
45 10 8 18
Total 97 78 175

2) General Purpose and Specific Purpose Table:- General purpose table, also known as the reference
table or repository tables, which provides information for general use or reference.
Special purpose are also known as summary or analytical tables which provides information for one
particular discussion or specific purpose.

METHODS OF SAMPLING
Meaning: - The process of obtaining a sample and its subsequent analysis and interpretation is known
as sampling and the process of obtaining the sample if the first stage of sampling.

The various methods of sampling can broadly be divided into:

i. Random sampling method

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ii. Non Random sampling method

Random Sampling Method

I Simple Random Sampling: - In this method each and every item of the population is given an equal
chance of being included in the sample.
(a) Lottery Method (b) Table of Random Numbers

Merits:
Equal opportunity to each item.
Better way of judgment
Easy analysis and accuracy
Limitations:
Different in investigation
Expensive and time consuming
For filed survey it is not good

II Stratified Sampling:- In this it is important to divided the population into homogeneous group
called strata. Then a sample may be taken from each group by simple random method.

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Merit:- More representative sample is used.

Grater accuracy
Geographically Concentrated
Limitations: Utmost care must be exercised due to homogeneous group deviation. In the absence of
skilled supervisor sample selection will be difficult.

III Systematic Sampling:- This method is popularly used in those cases where a complete list of the
population from which sampling is to be drawn is available. The method is to be select k th item from
the list where k refers to the sampling interval.

Merits: - It can be more convenient.

Limitation: - Can be Baised.

IV Multi- Stage Sampling: - This method refers to a sampling procedure which is carried out in several
stages.

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Merit: - It gives flexibility in Sampling

Limitation: - It is difficult and less accurate
Non Random Sampling Method:-
I. Judgment Sampling: - The choice of sample items depends exclusively on the judgment of the
investigator or the investigator exercises his judgement in the choice of sample items. This is an
simple method of sampling.

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II. Quota Sampling: - Quotas are set up according to given criteria, but, within the quotas the
selection of sample items depends on personal judgment.

III. Convenience Sampling: - It is also known as chunk. A chunk is a fraction of one population taken
for investigation because of its convenient availability. That is why a chunk is selected neither by
probability nor by judgment but by convenience.

Size of Sample:- It depends upon the following things:-

Cost aspects.
The degree of accuracy desired.
Time, etc.
Normally it is 5% or 10% of the total population.

Limitation of overall sampling Method:-

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Some time result may be inaccurate and misleading due to wrong sampling.
Its always needs superiors and experts to analyze the sample.
It may not give information about the overall defects. In production or any study.
It Becomes Biased due to following reason:-
(a) Faulty process of selection
(b) Faulty work during the collection of information
(c) Faulty methods of analysis etc.

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UNIT-II
MEASURES OF CENTRAL TENDENCY
The point around which the observations concentrate in general in the central part of the data is called
central value of the data and the tendency of the observations to concentrate around a central point is
known as Central Tendency.

Objects of Statistical Average:

➢ To get a single value that describes the characteristics of the entire group
➢ To facilitate comparison

Functions of Statistical Average:

➢ Gives information about the whole group
➢ Becomes the basis of future planning and actions
➢ Provides a basis for analysis
➢ Traces mathematical relationships
➢ Helps in decision making

Requisites of an Ideal Average:

➢ Simple and rigid definition
➢ Easy to understand
➢ Simple and easy to compute
➢ Based on all observations
➢ Least affected by extreme values
➢ Least affected by fluctuations of sampling
➢ Capable of further algebric treatment

• arithmatic mean
MEAN • geometric mean
• harmonic mean

MEDIAN

MODE

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ARITHMETIC MEAN ( )
Arithmetic Mean of a group of observations is the quotient obtained by dividing the sum of all
observations by their number. It is the most commonly used average or measure of the central
tendency applicable only in case of quantitative data. Arithmetic mean is also simply called “mean”.
Arithmetic mean is denoted by .

Merits DeMerits Uses

•It is rigidly defined. •The arithmetic mean is highly •When the frequency
•It is easy to calculate and simple affected by extreme values. distribution is symmetrical.
to follow. •It cannot average the ratios and •When we need a stable average.
•It is based on all the percentages properly. •When other measures such as
observations. •It cannot be computed standard deviation, coefficient
•It is readily put to algebraic accurately if any item is missing. of correlation are to be
treatment. •The mean sometimes does not computed later.
•It is least affected by coincide with any of the
fluctuations of sampling. observed value.
•It is not necessary to arrange •It cannot be determined by
the data in ascending or inspection.
descending order. •It cannot be calculated in case
of open ended classes.

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MEDIAN (M)
The median is that value of the variable which divides the group into two equal parts, one part
comprising of all values greater and other of all values less than the median. For calculation of median
the data has to be arranged in either ascending or descending order. Median is denoted by M.

Merits DeMerits Uses

•It is easily understood and easy to calculate. •For calculation, it is •When there are open-
•It is rigidly defined. necessary to arrange data ended classes provided it
•It can sometimes be located by simple in ascending or descending does not fall in those
inspection and can also be computed order. classes.
graphically. •Since it is a positional •When exceptionally large
•It is positional average therefore not affected average, its value is not or small values occur at
at all by extreme observations. determined by each and the ends of the frequency
every observation. distribution.
•It is only average to be used while dealing with
qualitative data like intelligence, honesty etc. •It is not suitable for further •When the observation
algebric treatment. cannot be measured
•It is especially useful in case of open end
•It is not accurate for large numerically but can be
classes since only the position and not the
data. ranked in order.
value of items must be known.
•The value of median is •To determine the typical
•It is not affected by extreme values.
more affected by sampling value in the problems
fluctuations than the value concerning distribution of
of the arithmetic mean. wealth etc.

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MODE (Z)
Mode is the value which occurs the greatest number of times in the data. The word mode has been
derived from the French word ‘La Mode’ which implies fashion. The Mode of a distribution is the value
at the point around which the items tend to be most heavily concentrated. It may be regarded as the
most typical of a series of values. Mode is denoted by Z.

Merits DeMerits Uses

•It is easy to understand and •It is not well defined. •When a quick
simple to calculate. •It is not based on all the approximate
•It is not affected by extreme values. measure of
large or small values. •It is suitable for large values central tendency
•It can be located only by and it will not be well defined is desired.
inspection in ungrouped data and if the data consists of small •When the
discrete frequency distribution. number of values. measure of
•It can be useful for qualitative •It is not capable of further central tendency
data. mathematical treatment. should be the
most typical
•It can be computed in open-end •Sometimes, the data has one
value.
frequency table. or more than one mode and
•It can be located graphically sometimes the data has no
mode at all.

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GEOMETRIC MEAN (G.M)

The geometric mean also called geometric average is the nth root of the product of n non-negative
quantities. Geometric Mean is denoted by G.M.

Properties of Geometric Mean:

• The geometric mean is less than arithmetic mean, G.M<A.M
• The product of the items remains unchanged if each item is replaced by the geometric mean.
• The geometric mean of the ratio of corresponding observations in two series is equal to the
ratios their geometric means.
• The geometric mean of the products of corresponding items in two series.

Merits of Geometric Mean:

• It is rigidly defined and its value is a precise figure.
• It is based on all observations.
• It is capable of further algebraic treatment.
• It is not much affected by fluctuation of sampling.
• It is not affected by extreme values.

Demerits of Geometric Mean:

• It cannot be calculated if any of the observation is zero or negative.
• Its calculation is rather difficult.
• It is not easy to understand.
• It may not coincide with any of the observations.

Uses of Geometric Mean:

• Geometric Mean is appropriate when:

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• Large observations are to be given less weight.

• We find the relative changes such as the average rate of population growth, the average
rate of intrest etc.
• Where some of the observations are too small and/or too large.
• Also used for construction of Index Numbers.

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HARMONIC MEAN (H.M)

Harmonic mean is another measure of central tendency. Harmonic mean is also useful for quantitative
data. Harmonic mean is quotient of “number of the given values” and “sum of the reciprocals of the
given values”. It is denoted by H.M.

Merits of Harmonic Mean:

• It is based on all observations.
• It not much affected by the fluctuation of sampling.
• It is capable of algebraic treatment.
• It is an appropriate average for averaging ratios and rates.
• It does not give much weight to the large items and gives greater importance to small items.

Demerits of Harmonic Mean:

• Its calculation is difficult.
• It gives high weight-age to the small items.
• It cannot be calculated if any one of the items is zero.
• It is usually a value which does not exist in the given data.

Uses of Harmonic Mean:

• Harmonic mean is better in computation of average speed, average price etc. under certain
conditions.

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UNIT-III

DISPERSION
The Dispersion (Known as Scatter, spread or variations) measures the extent to which the items vary
from some central value. The measures of dispersion is also called the average of second order (Central
tendency is called average of first order).
The two distributions of statistical data may be symmetrical and have common means, median or
mode, yet they may differ widely in the scatter or their values about the measures of central tendency.

Significance/ objectives of Dispersion-

• To judge the reliability of average
• To compare the two an more series
• To facilitate control
• To facilitate the use of other statistical measures.

Properties of good Measure of Dispersion

• Simple to understand
• Easy to calculate
• Rigidly defined
• Based on all items
• Sampling stability
• Not unduly affected by extreme items.
• Good for further algebraic treatment

Range
(coefficient of
Range)
Based on
selected Items
Inter-quartile,
coefficient of
Range (IQR)
Dispersion

Mean Deviation
Based on all
items
Standard
Deviation

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1. Range: - Range (R) is defined as the difference between the value of largest item and value of
smallest item included in the distributions. Only two extreme of values are taken into
considerations. It also does not consider the frequency at all series.
2. Quartile Deviation: - Quartile Deviation is half of the difference between upper quartile (Q3) and
lower quartile (Q1). It is very much affected by sampling distribution.
3. Mean Deviation: - Mean Deviation or Average Deviation (Alpha) is arithmetic average of
deviation of all the values taken from a statistical average (Mean, Median, and Mode) of the series.
In taking deviation of values, algebraic sign + and – are also treated as positive deviations. This is
also known as first absolute moment.
4. Standard Deviation:- The standard deviation is the positive root of the arithmetic mean of the
squared deviation of various values from their arithmetic mean. The S.D. is denoted as  Sigma.

Distinction between mean deviation and standard deviation

Mean Standard
Base
Deviation Deviation
Actual signs +, - are not ignored
Actual +, - Signs are ignored and
Algebric Sign whereas they are squared
all deviation are taken as positive
logically to be ignored.

Mean deviation can be computed Standard deviation is computed

Use of Measure
from mean, median, mode through mean only

It is not capable of further It is capable of further algebraic

Further algebraic Treatment
algebraic treatment. treatment

M.D is simple to understand and S.D is somewhat complex than

Simplicity
easy to calculate mean deviation.

It is based on simple average of It is based on square root of the

Based
sum of absolute deviation average of the squared deviation

Variance
The square of the standard deviation is called variance. In other words the arithmetic mean of the
squares of the deviation from arithmetic mean of various values is called variance and is denoted as 2.
Variance is also known as second movement from mean. In other way, the positive root of the variance
is called S.D.

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Coefficient of Variations- To compare the dispersion between two and more series we define coefficient

of S.D. The expression is x 100 = known as coefficient of variations.
X
Interpretation of Coefficient of Variance-
Value of variance Interpretation
Smaller the value of Lesser the variability or greater the uniformity/ stable/ homogenous of
2 population
Larger the value of 2 Greater the variability or lesser the uniformity/ consistency of the population

DISPERSION
RANGE = R
Individual Series Discrete Series Continuous Series
Range = L-S R=L−S R=L−S
Where L=Largest,
S=Smallest Observation
Coefficient of Range L−S L−S
L−S L+S L+S
L+S

QUARTILE DEVIATION - Q.D.

Individual Series Discrete Series Continuous Series
Q.D. = Q3 − Q1 Q.D. = Q3 − Q1 Q.D. = Q3 − Q1
Q3 − Q1 Q3 − Q1 Q3 − Q1
Coefficient of Q.D. = = =
Q3 + Q1 Q3 + Q1 Q3 + Q1

MEAN DEVIATION - M.D.  (“Through actual Mean, Mode, Median)

Individual Series Discrete Series Continuous Series

M (Median ) =
 dM  fdM  fdM
N N N
  
Coefficient of  =  =  =
M M M

Mean  X =
 dx  fd x  fd x
N N N
  
Coefficient of X =
X X X
(Mode) Z =
 dz  fdz  fdz
N N N
  
Coefficient of Z
Z Z Z

Standard Deviation =  can be calculated through mean only

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Individual Series Discrete Series Continuous Series

Direct
(Through actual d x 2  fd 2
 fd 2

mean) N f f
Indirect (Through
 dx   dx   fdx   fdx   fdx   fdx 
2 2 2 2
2 2
assumed mean) −  
 −  − 
N  N  f  f 
  f  f 
 

SKEWNESS

Skewness is a measure of symmetry, or more precisely, the lack of symmetry. A distribution, or data set,
is symmetric if it looks the same to the left and right of the center point.

Skewness is positive if the tail on the right side of the distribution is longer or fatter than the tail on the
left side. The mean and median of positively skewed data will be greater than the mode. Skewness is
negative if the tail of the left side of the distribution is longer or fatter than the tail on the right side. The
mean and median of negatively skewed data will be less than the mode. If the data graph symmetrically,
the distribution has zero skewness, regardless of how long or fat the tails are.

Karl Pearson developed two methods to find skewness in a sample:

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1. Pearson’s Coefficient of Skewness #1 uses the mode. The formula is:

Where = the mean, Mo = the mode and s = the standard deviation for the sample.

2. Pearson’s Coefficient of Skewness #2 uses the median. The formula is:

Where = the mean, Mo = the mode and s = the standard deviation for the sample.
It is generally used when you don’t know the mode.

CORRELATION

Introduction
1. Correlation is a statistical tool & it enables us to measure and analyse the degree or extent to
which two or more variable fluctuate/vary/change w.e.t. to each other.
2. For example – Demand is affected by price and price in turn is also affected by demand.
Therefore we can say that demand and price are affected by each other & hence are correlated.
the other example of correlated variable are –
3. While studying correlation between 2 variables use should make clear that there must be cause
and effect relationship between these variables. for e.g. – when price of a certain commodity is
changed ( or ) its demand also changed ( or ) so there is case & effect relationship
between demand and price thus correlation exists between them. Take another eg. where
height of students; as well as height of tree increases, then one cannot call it a case of
correlation because neither height of students is affected by height of three nor height of tree is
affected by height of students, so there is no cause & effect relationship between these 2 so no
correlation exists between these 2 variables.
4. In correlation both the variables may be mutually influencing each other so neither can be
designated as cause and the other effect for e.g. –
Price → Demand 
Demand → Price 
So, both price & demand are affected by each other therefore use cannot tell in real sense which
one is cause and which one is cause and which one is effect.

DEFINITIONS OF CORRELATION
1. “If 2 or more quantities vary is sympathy, so that movements is one tend to be accompanied by
corresponding movements in the other(s), then they are said to be correlated”. Connor.
2. “Correlation means that between 2 series or groups of data there exists some casual
correction”. WI King
3. “Analysis of Correlation between 2 or more variables is usually called correlation.” A.M. Turtle
4. “Correlation analysis attempts to determine the degree of relationship between variables.
Ya Lun chou
TYPES OF CORRELATION

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Correlation

Positive Negative Simple & Multiple Partial & Total Liner & Non Linear
Correlation Correlation Correlation Correlation

POSITIVE CORRELATION NEGATIVE CORRELATION

1 Value of 2 variables move in the same direction Value of 2 variables move in opposite direction
i.e. when increase/decrease in value of one i.e. when one variable increased, other variable
variable will cause increase or decrease in value decreases when one variable is decreased,
of other variable. other variable increase.
2 E.g. Supply & Price E.g. Demand & Price

So, supply and price are …….correlated So, Demand & Price vely correlated
P = Price/Unit P = Price/Unit
Q = quantity Supplied Q = quantity Supplied

SIMPLE CORRELATION MULTIPLE CORRELATION

1 In simple correlation, the relationship is The relationship between more than 2
confined to 2 variables only, i.e. the effect of variables is studied.
only one variable is studied
2 E.g. Demand & Price E.g. Demand & Price
Demand depends on → Price Demand depends on → Price
Demand on → income
This is case of simple correlation because This is case of multiple correlations because 2
relationship is confined to only one factor (that factors (Price & Income) that affects demand
affects demand) i.e. price so we have to find are taken. We have to find correlation between
correlation between demand & price. demand & price.
If, demand = Y Demand & Price
If, demand – X If, demand = Y
Then, Correlation between Y & X Price = X1
Price = X2
Then
Correlation between Y & X1
Correlation between Y & X2

SIMPLE CORRELATION MULTIPLE CORRELATION

In partial correlation though more than 2 factors In total correlation relationship between all
are involved but correlation is studies only the variables is studied i.e., none of item is
between to be constant. assumed to be constant
E.g. E.g.
X1 Y = Demand X1 Y = Demand
Y X1 = Price Y X1 = Price
X2 X2 = Income X2 X2 = Income
If we study correlation between Y & X1 & assume If we assume that income is not constant i.e.
X2 to be constant it is a case of partial we study the effect of both price & income on

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correlation. this is what we do in law of demand – demand, it is a case of total correlation.

assume factors other than price as constant In other words, cataris paribus assumption is
(Ceteris paribus – Keeping other things constant) relaxed in this case.

LINEAR CORRELATION NON-LINEAR CORRELATION

1 In linear correlation, due to unit, change value of In non linear or curvilinear correlation, due to
one variable there is constant change in the unit, change value of one variable, the change in
value of other variable. The graph for such a the value of other variable is not constant. the
relationship is straight line. E.G. – If in a factory graph for such a relationship is a curve. E.G. –
no of workers are doubled, the production The amount spent on advertisement will not
output is also doubled, and correlation would be bring the change in the amount of sales in the
linear. same ratio, it means the variation.
2 If the changed in 2 variables are in the same If the change in 2 variables is in the same
direction and in the constant ratio, it is linear direction but not in constant ratio, the
positive correlation correlation is non linear positive.
X Y Y X Y Y
2 3 50 10
4 6 55 12
6 9 60 15
8 12 90 30
X
100 45 X
3 If changes in 2 variables are in the opposite If changes in 2 variables are in opposite
direction but in constant ratio, the correlation is direction and not in constant ratio, the
linear negative. For eg. every 5%  is price of a correlation is non linear negative. For eg: -
good is associated with 10% decrease in every 5% in price of good is associated with
demand the correlation between price and 20% to 10%in demand, the correlation
demand would be linear negative. between price & demand would be non linear
X Y Y negative. Y
2 21 X Y
4 18 80 50
6 15 55 60
8 12 X 50 75
10 9 90 130 X

TYPE – 1 [BASED ON KARL PEARSON’S COFFICIENT OF CORRELATION]

Before use move to numerical, use understand the basic notions & concepts –
dx = Deviations of xi value from mean = (xi - 𝑥̅ )
xi
x = Mean of x value [Average of X values] = 𝑛
n = No. of observations
dy = Deviation of y value from mean = (y - 𝑦̅ )
yi
𝑦̅ = Mean of y values =
𝑛
d2x = Square of deviation of x values = (xi - 𝑥̅ )2
d2y = Square of deviation of x values = (yi - 𝑦̅ )2
dxdy = Product of deviations = (xi - 𝑥̅ ) (yi - 𝑦̅ )

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(xi − 𝑥̅ ) (yi − 𝑦̅ )
Covariance (x,y) = 𝑛
(xi − 𝑥̅ )2
x = Variance of xi values = 𝑛
(yi − 𝑦̅ )2
y = Variance of yi values = 𝑛
r or rxy = coefficient of correlation between x 7 y variables.

Direct Method for Karl Pearson’s Coefficient of correlation

Deviation from actual mean method

Deviation from assumed mean method (Short Cut Method)

This method is used in the situation where mean of any series (x or y) is not in whole number, i.e. in
decimal value. in this case it is advisable to take deviation from assumed mean rather than actual mean
and then use the above formula.
In the above short cut method
Let, A = Assumed mean of X series
B = Assumed mean of y series
then dx = (xi – A) & dy = (yi – B) &
dx 2= (xi – A)2 & dy2= (yi – B)2
dxdy= (xi – A)(xi – B)

REGRESSION ANALYSIS
The dictionary meaning of regression is “Stepping Back”. The term was first used by a British
Biometrician” Sir Francis Galton 1822 – 1911) is 1877. He found in his study the relationship between
the heights of father & sons. In this study he described “That son deviated less on the average from the
mean height of the race than their fathers, whether the father’s were above or below the average, son
tended to go back or regress between two or more variables in terms of the original unit of the data.

Meaning
Regression Analysis is a statistical tool to study the nature extent of functional relationship between
two or more variable and to estimate the unknown values of dependent variable from the known
values of independent variable.

Dependent Variables – The variable which is predicted on the basis of another variable is called
dependent or explained variable (usually devoted as y)

Independent variable – The variable which is used to predict another variable called independent
variable (denoted usually as X)

Definition

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Statistical techniques which attempts to establish the nature of the relationship between variable and
thereby provide a mechanism for prediction and forecasting is known as regression Analysis.
– Ya-lun-Chon”
Importance/uses of Regression Analysis
• Forecasting
• Utility in Economic and business area
• Indispensible for goods planning
• Useful for statistical estimates.
• Study between more than two variable possible
• Determination of the rate of change in variable
• Measurement of degree and direction of correlation
• Applicable in the problems having cause and effect relationship
• Regression Analysis is to estimate errors
• Regression Coefficient (bxy & byx) facilitates to calculate of determination ® & coefficient or
correlation (r)

Regression Lines
The lines of best fit expressing mutual average relationship between two variables are known as
regression lines – there are two lines of regression

Why are two Regression lines –

1. While constructing the lines of regression of x on y is treated as independent variables where
as ‘x’ is treated as treated as dependent variable. This gives most probable values of ‘X’ for gives
values of y. the same will be there for y on x.

RELATIONSHIP BETWEEN CORRELATION & REGRESSION

1. When there is perfect correlation between two series (r = ± 1) the regression with coincide
and there will be only one regression line.
2. When there is no correction (r = o)> Both the lines will cut each other at point.
3. Where there is more degree of correction, say (r = ± 70 or more the two regression line with
be next to each other whereas when less degree of correction. Say (r=± 10 on less) the two
regression line will be a parted from each other.

REGRESSION LINES AND DEGREE OF CORRELATION

DIFFERENCE BETWEEN CORRELATION AND REGRESSION ANALYSIS

The correlation and regression analysis, both, help us in studying the relationship between two
variables yet they differ in their approach and objectives. The choice between the two depends on the
purpose of analysis.
S.NO BASE CORRELATION REGRESSION
1 MEANING Correlation means relationship between Regression means step ping back
two or more variables in which or returning to the average value,
movement in one have corresponding i.e., it express average
movements in other relationship between two or more

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variables.
2 RELATIONSHIP Correlation need not imply cause and Regression analysis clearly
effect relationship between the variables indicates the cause and effect
under study relationship. the variable(s)
constituting causes(s) is taken as
independent variables(s) and the
variable constituting the variable
consenting the effect is taken as
dependent variable.
3 OBJECT Correlation is meant for co-variation of Regression tells use about the
the two variables. the degree of their co- relative movement in the variable.
variation is also reflected in correlation. We can predict the value of one
but correlation does not study the variable by taking into account
nature of relationship. the value of the other variable.
4 NATURE There may be nonsense correlation of There is nothing like nonsense
the variable has no practical relevance regression.
5 MEASURE Correlation coefficient is a relative The regression coefficient is
measure of the linear relationship absolute measure representing
between X and Y. It is a pure number the change in the value of
lying between 1 and +1 variable. We can obtain the value
of the dependent variable.
6 APPLICATION Correlation analysis has limited Regression analysis studies linear
application as it is confined only to the as well as non linear relationship
study of linear relationship between the between variables and therefore,
variables. has much wider application.

Why least square is the Best?

When data are plotted on the diagram there is no limit to the number of straight lines that could be
drawn on any scatter diagram. Obviously many lines would not fit the data and disregarded. If all the
points on the diagram fall on a line, that line certainly would the best fitting line but such a situation is
rare and ideal. Since points are usually scatters, we need a criterion by which the best fitting line can be
determined.

Methods of Drawing Regression Lines –

1. Free curve –
2. Regression equation x on y,
X = a + by …………………………….(1)
3. Regression equation y on x
Y = a + bx
Where
‘a’ is that point where regression lines touches y axis (the value of dependent variable value
when value or independent variable is zero)
‘b’ is the slop of the said line (The amount of change in the value of the dependent variable per
unit change)

Change in independent variable)

A and b constants can be calculated through –
(x = a + by) (by multiplying ‘’)

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x = Na + by (1)

x (y = a + bx) (by multiplying x)

xy = xa + bx2 (2)

KINSDS OF REGRESSION ANALYSIS

1. Linear and Non- Linear Regression
2. Simple and Multiple Regression

FUNCTIONS OF REGRESSION LINES –

1. To make the best estimate –
2. To indicate the nature and extent of correlation

REGRESSION EQUATIONS –
The regression equation’s express the regression lines, as there are two regression lines there are two
regression equations –
Explanation is given in formulae –

REGRESSION LINES
1. Regression equation of x on y
X – X = bxy (y – y)
Where bxy = regression coefficient of X on Y
2. Regression euation of y on x
Y – Y = bxy (x – x) where bxy = regression coefficient of Y on X

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REGRESSION COEFFICIENT – There are two regression coefficient like regression equation, they are
(bxy and byx)
Properties of regression coefficients –
• Same sign – Both coefficient have the same either positive on negative
• Both cannot by greater than one – If one Regression is greater than “One” or unity. Other must
be less than one.
• Independent of origin – Regression coefficient are independent of origin but not of scale.
• A.M.> ‘r’ – mean of regression coefficient is greater than ‘r’
• R is G.M. – Correlation coefficient is geometric mean between the regression coefficient
• R, bxy and bxy – They all have same sign

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