Unit – IV Correlation Analysis – Meaning

Correlation refers to the relationship of two or more variables; for example there exist some
relationship between the height of a father and the height of a son, price and demand, wage
and price index.

Correlation is the statistical analysis which measures and analysis the degree or extent to
which two variables fluctuate with reference to each other. The word relationship is of
important and indicates that there is some connection between the variables under
observation. The correlation measures the closeness of the relationship between the variables.

Definition of Correlation

According to YA Lun Chou, Correlation analysis attempts to determine the degree of

Types of Correlation

Correlation is classified in different ways. The most important types are:

1. Positive and Negative Correlation

Positive Correlation is said to be positive when the values of the two variables moves in
same direction i.e, an increase of one variable is accompanied by an increase of another
variable and vice versa e.g. income and savings.

Negative Correlation

Correlation is said to be negative when the values of the two variables move in the opposite
directions i.e one variable is increasing and the other is decreasing and vice versa.

2. Simple, Partial and Multiple Correlation

Simple correlation – When we study the relationship of only two variables. It is called
simple correlation.

Multiple Correlation – When we study the relationship of two or more variables

Partial Correlation – When we study only two variables excluding the effect of some other
variables it is called partial correlation.

3. Linear and Non-linear correlation

Linear Correlation – If the ratio of change between two variables is uniform , then the
correlation is said to be linear.

Non-Linear Correlation- If the amount of change in one variable does not bear a constant
ratio to the amount of change in other variable, then the correlation is said to be non-linear or
curvilinear.
Unit – IV – Regression Analysis

Regression analysis helps to estimate ( predict ) the value of one variable from the given
value to another.

Meaning of Regression

The statistical tool with the help of which we are able to estimate the unknown value of one
variable from the known value of another variable is called Regression.

Definition

Regression is the measure of the average relationship between two or more variables in terms
of original units of the data. - Blair

Correlation Regression

It measures the degree of relationship It studies the nature of relationship

Here variables are selected at random i.e Here the value of one variable is selected
variables should be random variables. at random after fixing the values of other
variable.
It is applied where there is no direction It is applied where there is a direction of
of dependency. dependency.
Here cause and effect relationship is not It indicates the cause and effect
clear. relationship between the variables.

It is not used for prediction of values It is used to predict the value of one on
the basis of other variable.
The co-efficient of correlation is a Co-efficient of regression is an absolute
relative measure measure.
It is applied only when there exists linear It is applied when there exists both linear
relationship between variables. and non-linear relationship.
Differences between Correlation and Regression