9/7/24, 1:42 AM Statistics for Economics Class 11 Notes Chapter 7 Correlation - Learn CBSE

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Statistics for Economics Class 11 Notes

Chapter 7 Correlation
July 6, 2019 by Sastry CBSE

Statistics for Economics Class 11 Notes Chapter 7

Correlation
Correlation
It is a statistical method or a statistical technique that measures quantitative relationship between different
variables, like between price and demand.
According to Croxton and Cowden, “When the relationship is of a quantitative nature, the appropriate
statistical tool for discovering and measuring the relationship and expressing it in a brief formula is known
as correlation.”

Types of Correlation
Correlation is commonly classified into negative and positive correlation.

Positive Correlation When two variables move in the same direction, such a relation is called positive
correlation, e.g., Relationship between price and supply

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9/7/24, 1:42 AM Statistics for Economics Class 11 Notes Chapter 7 Correlation - Learn CBSE
Negative Correlation When two variables changes in different directions, it is called negative
correlation. Relationship between price and demand.
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Degree of Correlation
Degree of correlation refers to the coefficient of correlation
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(ii) Absence of Correlation

(iii) Limited Degree of correlation
The degree of correlation between 0 and 1 may be rated as

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High (0.75 and 1)

Moderate (0.25 and 0.75)
Low (0 and 0.25)

Methods of Estimating Correlation

(i) Scatter Diagram Scattered diagram offers a graphic expression of the direction and degree of correlation.

Karl Pearson’s Coefficient of Correlation

This is also known as product moment correlation and simple correlation coefficient.
Karl Pearson has given a quantitative method of calculating correlation Karl Pearson’s coefficient
correlation is generally written as V.

Formula According to Karl Pearson’s method, the coefficient of correlation is measured as

Σxy
r= Nσx σy
Where,
r = Coefficient of correlation;
¯¯
x = x – x̄
y= y – ȳ¯¯

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9/7/24, 1:42 AM Statistics for Economics Class 11 Notes Chapter 7 Correlation - Learn CBSE
σx = Standard deviation of x series
σy = Standard deviation of y series
N=NCERT
Number of observationsRD SHARMA
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If there is no need to calculate standard deviation of x and y directly using the following formula
Σxy
r=
√Σx2 ×ΣySOLUTIONS
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¯¯), y = (y – ȳ
Here, x(x – x̄ ¯¯)

Short-cut Method
This method is used when mean value is not in whole number but in fractions. In this method, deviation is
calculated by taking the assumed mean both the series.
Coefficient of correlation is calculated using the following formula

Here, dx = deviation of x series from the assumed mean = (x – A)

dy = deviation of y series from the assumed mean = (y – A)
Σ dxdy – sum of the multiple of dx and dy
Σ dx2 = sum of square of dx
Σ dy2 = sum of square of dy
Σdx= sum of deviation of x-series
Σdy = sum of deviation of y-series
N = Total number of items

Step Deviation Method

Coefficient of correlation is calculated using the following formula

Spearman’s Rank Correlation Coefficient

In 1904, ‘Charles Edwards Spearman’ developed a formula to calculate coefficient correlation of qualitative
variables. It is popularly known as Spearman’s rank. Difference formula or method.

Coefficient of Rank Correlation when Ranks are Equal formula

Here, m = number of items of equal ranks.

Importance or Significance of Correlation

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9/7/24, 1:42 AM Statistics for Economics Class 11 Notes Chapter 7 Correlation - Learn CBSE
The study of correlation shows the direction and degree of relationship between the variables.
Correlation coefficient some times suggests cause and effect relationship.
Correlation
NCERT analysis facilitates
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decisions
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suggest the expected changes in the other.
Correlation analysis also helps policy formulation.
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Statistics for Economics Class 11 Notes

Class 11 Economics Notes
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