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Correlation Analysis MBA

The document discusses correlation analysis and correlation coefficient. It defines correlation as the relationship between two variables where a change in one variable corresponds to a change in the other. Correlation analysis measures the degree and direction of this relationship. There are different types of correlation based on the degree (positive vs negative), number of variables (simple, partial, multiple), and linearity (linear vs non-linear). Common methods to study correlation include scatter diagrams, Karl Pearson's coefficient, Spearman's rank coefficient, and the method of least squares. The value of the correlation coefficient r ranges from -1 to 1, with values closer to these extremes indicating a stronger linear relationship and values closer to 0 indicating a weaker relationship.

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87 views

Correlation Analysis MBA

The document discusses correlation analysis and correlation coefficient. It defines correlation as the relationship between two variables where a change in one variable corresponds to a change in the other. Correlation analysis measures the degree and direction of this relationship. There are different types of correlation based on the degree (positive vs negative), number of variables (simple, partial, multiple), and linearity (linear vs non-linear). Common methods to study correlation include scatter diagrams, Karl Pearson's coefficient, Spearman's rank coefficient, and the method of least squares. The value of the correlation coefficient r ranges from -1 to 1, with values closer to these extremes indicating a stronger linear relationship and values closer to 0 indicating a weaker relationship.

Uploaded by

ravi anand
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We take content rights seriously. If you suspect this is your content, claim it here.
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Correlation Analysis

Dr. Sitaram Pandey


[email protected]
Definition
• In a distribution if the change in one variable effects a
change in the other variable, the variable are said to
be correlated(or there is a correlation between the
variables).
• Let X and Y measure some characteristics of a
particular system .To study the overall measure of the
system it is necessary to measure the
interdependence of X and Y.
• If the quantities(X,Y) vary in such a way that change
in one variable corresponds to change in the other
variable then the variables X and Y are correlated.
Continued…………
• Correlation analysis is a process to find out the
degree of relationship between two or more
variables by applying various statistical tools and
techniques.
• Measures the degree of relation : It is used in
deriving the degree and direction of relationship
within the variables.
• Estimating values of variables i.e. if variables are
highly correlated then we can find value of variable
with the help of gives value of variable.
Examples
• Relationship between the heights and weights.
• Relationship between the quantum of rainfall
and the yield of wheat.
• Relationship between the Price and demand of
commodity.
• Relationship between the dose of insulin and
blood sugar.
• Relationship between price and quantity
demanded
Types of correlation
• The important ways of classifying the
correlation are:
– On the basis of degree of correlation
it is Positive and Negative.
– On the basis of number of variables it
is Simple , Partial and Multiple.
– On the basis of linearity it is Linear
and non-Linear.
Methods of studying correlation
• The following are the important
methods of ascertaining correlation
between two variables.
– Scatter diagram method
– Karl Pearson’s Co-efficient
– Spearman’s Rank Correlation Co-
Efficient
– Method of least-squares
Continued………
• Scatter Diagram Method: The simplest device
for studying correlation between two variables
is a special type of dot chart.
• Scatter diagrams are used to demonstrate
correlation between two quantitative
variables.
Features of Correlation Coefficient
• Ranges between –1 and 1
• The closer to –1, the stronger the negative
linear relationship
• The closer to 1, the stronger the positive
linear relationship
• The closer to 0, the weaker any positive
linear relationship
The value of r lies between - 1 and +1

• If r=0 There exists no relationship between the variables.


• If +0.75 ≤r ≤ +1 There exists high positive relationship between
the variables .
• If -0.75 ≥ r ≥ -1 There exists high negative relationship between
the variables.
• If +0.5 ≤r ≤ 0.75 There exists Moderate positive relationship
between the variables .
• If -0.50 ≥ r >-0.75 There exists moderate negative relationship
between the variables.
• If r > -0.50 There exists low negative relationship between the
variables
• If r <0.5 There exists low positive relationship between the
variables .
Karl Pearson’s Correlation Coefficient
Continued………
Illustration
• The following data relate to age of employees
and the number of days they reported sick in a
month. Calculate Karl Pearson’s coefficient of
correlation and interpret it.
Empl 1 2 3 4 5 6 7 8 9 10
oyees
Age 30 32 35 40 48 50 52 55 57 61

Sick 1 0 2 5 2 4 6 5 7 8
Days
Solution
Bi-variate Frequency
• The following table gives the frequency ,
according to the marks , obtained by 67
students in an intelligence test. Measure the
degree of relationship between age and marks:
Age in Years Total
Test 18 19 20 21
Marks

200-250 4 4 2 1 11
250-300 3 5 4 2 14
300-350 2 6 8 5 21
350-400 1 4 6 10 21
Total 10 19 20 18 67
Solution
Calculate the coefficient of correlation
from the following bivariate frequency
distribution (Ans : r = 0.596)

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