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Problem set_chapter 2

The document outlines exercises related to correlation analysis using various datasets, including executive compensation and housing prices. It involves calculating descriptive statistics, verifying correlations, and interpreting the relationships between different variables such as income, education, and intelligence. Additionally, it discusses the implications of these correlations in understanding causation and the significance of educational qualifications in job compensation.

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Tuan Anh Tran
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3 views

Problem set_chapter 2

The document outlines exercises related to correlation analysis using various datasets, including executive compensation and housing prices. It involves calculating descriptive statistics, verifying correlations, and interpreting the relationships between different variables such as income, education, and intelligence. Additionally, it discusses the implications of these correlations in understanding causation and the significance of educational qualifications in job compensation.

Uploaded by

Tuan Anh Tran
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Chapter 2: Correlation

Exercise 1
(a) Using the data in EXECUTIVE.XLS, calculate and interpret the mean, standard
deviation, minimum and maximum of executive compensation and profits.
(b) Verify that the correlation between these two variables is 0.66.
Exercise 2
(a) Using the data in HPRICE.XLS, calculate and interpret the mean, standard
deviation, minimum and maximum of Y = house price (labeled “sale price” in
HPRICE.XLS), X = lot size and Z = number of bedrooms (labeled “#bedroom”).
(b) Verify that the correlation between X and Y is the same as given in the
example. Repeat for X and Z then for Y and Z.
(c) Now add a new variable, W = number of bathrooms (labeled “#bath”).
Calculate the mean of W.
(d) Calculate and interpret the correlation between W and Y. Discuss to what
extent it can be said that W causes Y.
(e) Repeat part (d) for W and X and then for W and Z.
Exercise 3
People with university education tend to hold higher paying jobs than those with
fewer educational qualifications. This could be due to the fact that a university
education provides important skills that employers value highly. Alternatively, it
could be the case that smart people tend to go to university and that employers
want to hire these smart people (i.e. a university degree is of no interest in and of
itself to employers).
Suppose you have data on Y = income, X = number of years of schooling and Z =
the results of an intelligence test of many people, and that you have calculated
rXY, rXZ and rYZ. In practice, what signs would you expect these correlations to
have? Assuming the correlations do have the signs you expect, can you tell which
of the two stories in the paragraph above is correct?
Exercise 4
The file EX34.XLS contains four variables: Y, X1, X2 and X3.

1
(a) Calculate the correlation between Y and X1. Repeat for Y and X2 and for Y
and X3.
(b) Create an XY-plot involving Y and X1. Repeat for Y and X2 and for Y and X3.
(c) Interpret your results for (a) and (b).
Exercise 5
(a) Using the data in EXECUTIVE.XLS, calculate and interpret a correlation
matrix involving executive compensation, profit, change in sales and change in
debt.
(b) Repeat part (a) using the following variables in the data set HPRICE.XLS:
house price, lot size, number of bedrooms, number of bathrooms and number of
stories. How many individual correlations have you calculated?

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