CORRELATION
ANALYSIS
It is a statistical
measure which shows
relationship between two or
morevariable
moving in the same or
in opposite direction
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Visual Displays and
Correlation • Correlation
Analysis
Analysis
• The sample correlation coefficient (r) measures the
degree of linearity in the relationship between X
and Y.
-1 < r < +1
Strong negative relationship Strong positive relationship
• r = 0 indicates no linear relationship
• In Excel, use =CORREL(array1,array2),
where array1 is the range for X and array2 is
the range for Y.
Types of correlation
correlation
Simple ,
positive Linear
& negative & non-linear
multiple
& 3
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partial
Methods of correlation
• Scatter diagram
• Product moment or covariance
• Rank correlation
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Scatter diagram
• Perfectly
+ve
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Less-degree +ve
Weak Positive
Correlation
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High degree +ve
Strong Positive
Correlation
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Perfectly -ve
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High degree -ve
Strong Negative Correlation
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Less degree -ve
Weak Negative
Correlation
10
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Zero degree
11
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Karl Pearson correlation
coefficient
ο .
cov(x,
x σ y)
y
r=
r x.y
∑
=
x2 . y2
∑ ∑
12
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Where
x=X −X
and
y =Y −Y
13
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problem
From the following data find the
coefficient of correlation by Karl
Pearson method
X:6, 2, 10, 4,8.
Y:9, 11, 5, 8, 7.
Sol.
X Y X-6 Y-8 x. y
x2 y2
6 9 0 1 0 1 0
2 11 -4 3 16 9 -12
10 5 4 -3 16 9 -12
8 8 -2 0 4 0 0
4 7 2 -1 4 1 -2
30 40 0 0 40 20 -26
Sol.cont.
∑X
X =
= 30 = 6
N 5
N 5
∑Y 40
Yr = x.y = − 26 = − 26
==8
∑ =
∑ x .∑ y
2 2
≈ −0.92
40.20 800
Direct method
N. XY − X. Y
∑ ∑ ∑
r
= [N ∑ X − ( ∑ X ) ].
2 2
[N.∑ Y − (∑ Y ) ]
2 2
17
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Short-cut method
N dx .d y − dx .
r ∑ ∑ ∑
2. N2 d
y − (
N ∑ d dx ∑ ∑ ∑ y
2 2
= x y
−( d
d
) )
18
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Where
dx =X−A
&
dy =Y−A
A = assume
mean
19
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Product moment method
r b .b
xy yx
=
where
b xy = xy
∑
∑ y 2
b yx =∑ xy
∑x 2 20
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spearman’s Rank correlation
R= 6 D2
1− N ∑
(N 2
where −1)
D = Rx − Ry
Rx =
rank.of .X Ry
=
21
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problem
Calculate spearman’s rank correlation
coefficient between advt.cost & sales from
the following data
Advt.cost : 39 65 62 90 82 75 25 98 36 78
Sales(lakhs): 47 53 58 86 62 68 60 91 51 84
X Y R-x R-y D
D2
Sol. 39 47 8 10 -2 4
65 53 6 8 -2 4
62 58 7 7 0 0
90 86 2 2 0 0
82 62 3 5 -2 4
75 68 5 4 1 1
25 60 10 6 4 16
98 91 1 1 0 0
36 51 9 9 0 0
78 84 4 3 1 1
30
Sol.cont.
R = 6 D2
1− N∑3
−
N 6.30
⇒R=
1− 10 3
−10
⇒ R = 1−
2
11
9
⇒ R = 11
= 0.82
In case of equal rank
6
⎨ D 2 1 m3( (
1 3
m−
⎫
⎬
⎩ 12 + ........ ⎭
R=
1−
⎧
∑ + 12 − mN N)(
2 m )
where −1)
m = no.of repeated
items
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problem
A psychologist wanted to compare two methods
A & B of teaching. He selected a random
sample of 22 students. He grouped them into
11 pairs so that the students in a pair have
approximately equal scores in an intelligence
test. In each pair one student was taught by
method A and the other by method B and
examined after the course. The marks
obtained by them as follows
Pair:1 2 3 4 5 6 7 8
9 10 11
A: 24 29 19 14 30 19 27 30 20 28 11
B: 37 35 16 26 23 27 19 20 16 11 21
A B R-A R-B D D2
Sol. 24 37 6 1 5 25
29 35 3 2 1 1
19 16 8.5 9.5 -1 1
14 26 10 4 6 36
30 23 1.5 5 -3.5 12.25
19 27 8.5 3 5.5 30.25
27 19 5 8 -3 9
30 20 1.5 7 -5.5 30.25
20 16 7 9.5 -2.5 6.25
28 11 4 11 -7 49
11 21 11 6 5 25
225
Sol.cont.
in A series the items19 & 30 are repeated twice and in B
series16 is repeated twice∴
+ 2(4 −1) + 2(4 −1) +
6⎡⎢ D2 12 12 12 ⎥
R= ∑ 2(4 −1) ⎤
1- ⎣ 11(121−1) ⎦
⇒R=
−0.0225
Properties of correlation coefficient
• r always lies between +1 & -1
i.e. -1<r<+1
• Two independent variables are
uncorrelated but converse is not true
• r is independent of change in origin and
scale
• r is the G.M. of two regression coefficients
• r is symmetrical 29
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Probable error
1−r 2
SE(r )
= n
PE(r ) = 0.6745×SE(r )
or
1−r 2
PE(r ) = 0.6745×
n
30
m
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The coefficient of determination
► It is the primary way we can measure the extent or
strength of the association that exists between two
variables x & y . Because we have used a sample
of points to develop regression lines .
2
It is denoted by r
Thank
you
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