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Correlation

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Correlation

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caravan.travellers22
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© © All Rights Reserved
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Correlation

The statistical tools with the help of which we study the relationships between two or more variables are
called correlation.

Example:

Correlation Analysis
Correlation is a term that refers to the strength of a relationship between two variables.
Correlation and regression analysis are related in the sense that both deal with relationships
among variables. The correlation coefficient is a measure of linear association between two
variables. Values of the correlation coefficient are always between -1 and +1. The value of -1
represents a perfect negative correlation while a value of +1 represents a perfect positive
correlation. A value of 0 means that there is no relationship between the variables being tested.

Types of Correlation:
There are different types of Correlation. They are listed as follows:

Positive Correlation

A positive correlation is a correlation in the same direction. A relationship between two variables in
which both variables move in same directions. A positive correlation exists when as one variable
decreases, the other variable also decreases and vice versa. When the values of two variables x and y
move in the same direction, the correlation is said to be positive. That is in positive correlation, when
there is an increase in x, there will be and an increase in y also. Similarly when there is a decrease in x,
there will be a decrease in y also.

Positive Correlation Example

Price and supply are two variables, which are positively correlated. When Price increases, supply also
increases; when price decreases, supply decreases.
Positive Correlation Graph

Negative Correlation

A negative correlation is a correlation in the opposite direction.

In a negative correlation, as the values of one of the variables increase, the values of the second variable
decrease or the value of one of the variables decreases, the value of the other variable increases. When
the values of two variables x and y move in opposite direction, we say correlation is negative. That is in
negative correlation, when there is an increase in x, there will be a decrease in y. Similarly when there is
a decrease in x, there will be an increase in y increase.

Negative Correlation Example

When price increases, demand also decreases; when price decreases, demand also increases. So price
and demand are negatively correlated.

Partial Correlation

The correlation is partial if we study the relationship between two variables keeping all other variables
constant.
Example:
The Relationship between yield and rainfall at a constant temperature is partial correlation.

Simple Correlation

If there are only two variable under study, the correlation is said to be simple.

Example:

The correlation between price and demand is simple.

Multiple Correlations

When one variable is related to a number of other variables, the correlation is not simple. It is
multiple if there is one variable on one side and a set of variables on the other side.

Example:

Relationship between yield with both rainfall and fertilizer together is multiple correlations

Linear Correlation

When the change in one variable results in the constant change in the other variable, we say the
correlation is linear. When there is a linear correlation, the points plotted will be in a straight
line.

Non Linear Correlation

When the amount of change in one variable is not in a constant ratio to the change in the other
variable, we say that the correlation is non linear.

Methods of studying Correlation:


Coefficient of correlation, r, called the linear correlation coefficient, measures the strength and
the direction of a linear relationship between two variables. It also called as Pearson product
moment correlation coefficient. The algebraic method of measuring the correlation is called the
coefficient of correlation. There are mainly three coefficients of correlation

1. Karl Pearson’s Coefficient of correlation


2. Spearman’s rank correlation coefficient
3. Scatter diagram method
4. Least square method
Karl Pearson’s Coefficient of correlation

The most important algebraic method of measuring correlation is Karl Pearson’s Coefficient of
correlation or Pearsonian’s coefficient of Correlation. It has widely used application in Statistics. It is
denoted by r.

r =
∑ ( X− X ) (Y −Y )
√∑ (X −X )2 √ ∑ (Y −Y )2
Interpretation of Karl Pearson’s Coefficient of correlation

Karl Pearson’s Coefficient of correlation denoted by r is the degree of correlation between two
variables. r takes values between –1 and 1

When r is –1, we say there is perfect negative correlation.


When r is a value between –1 and 0, we say that there is a negative correlation
When r is 0, we say there is no correlation
When r is a value between 0 and 1, we say there is a positive correlation
When r is 1, we say there is a perfect positive correlation.

Properties of the Coefficient of correlation

1. Coefficient of correlation has a well defined formula


2. Coefficient of correlation is a number and is independent of the unit of measurement
3. Coefficient of correlation lies between –1 and 1
4. Coefficient of correlation between x and y will be same as that between y and x.

Spearman's Correlation

Spearman's rank correlation coefficient allows us to identify easily the strength of correlation within a
data set of two variables, and whether the correlation is positive or negative. The Spearman coefficient
is denoted with the Greek letter rho (ρ).

ρ=1−
6∑ D
2

3
N −N

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