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Week 5 Correlation Analysis

The document explains various statistical methods such as correlation and regression analysis, highlighting their applications in examining relationships between variables. It provides definitions for key terms like scatter plots, correlation coefficients, and the line of best fit, and illustrates these concepts with an example involving advertising costs and sales data. The example demonstrates how to construct a scatter plot and calculate the Pearson correlation coefficient to assess the strength of the relationship between the two variables.

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miyarishin
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3 views

Week 5 Correlation Analysis

The document explains various statistical methods such as correlation and regression analysis, highlighting their applications in examining relationships between variables. It provides definitions for key terms like scatter plots, correlation coefficients, and the line of best fit, and illustrates these concepts with an example involving advertising costs and sales data. The example demonstrates how to construct a scatter plot and calculate the Pearson correlation coefficient to assess the strength of the relationship between the two variables.

Uploaded by

miyarishin
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Terminologies :

Correlation analysis is a method of statistical evaluation used to study the


strength of a relationship between two, numerically measured, continuous
variables.
Regression analysis is a powerful statistical method that allows you to examine
the relationship between two or more variables of interest.
Scatter Plot a graph in which the values of two variables are plotted along two
axes, the pattern of the resulting points revealing any correlation present.
Simple Relationship refers to analysis involving two variables - an independent
variable (also called an explanatory variable or a predictor variable) and a
dependent variable (also called a response variable). A simple relationship analysis
is called simple regression, where there is one independent variable that is used
to predict the dependent variable.
Multiple Regression is an extension of simple linear regression. It is used when we
want to predict the value of a variable based on the value of two or more other
variables
Correlation Coefficient is a statistical measure of the strength of the relationship
between the relative movements of two variables.
Line of Best Fit is a straight line that is the best approximation of the given set of
data. It is used to study the nature of the relation between two variables.
Coefficient of Determination is a statistical measurement that examines how
differences in one variable can be explained by the difference in a second variable,
when predicting the outcome of a given event. In other words, this coefficient, which is
more commonly known as R-squared (or R2), assesses how strong the linear
relationship is between two variables, and is heavily relied on by researchers when
conducting trend analysis.
Scatterplot.

 is a visual way to describe the nature of the relationship


between the variables. It is a graph of the ordered pairs (x, y)
of numbers consisting of the independent variable x and the
dependent variable y.
Pearson r Correlation:
Example.
Construct the scatter plot and solve the relationship of the data
shown for the advertising cost (in thousands) and sales (in
thousands) from several companies and determine whether there
seems to be a linear relationship between the two variables.

Advertising
12 8 10 5 12 14 11 8 6
Cost ( x )
Sales ( y ) 20 12 15 10 18 20 18 10 11

Solution.
Step 1. Draw and label the x and y axes.
Step 2. Plot each point on the graph as shown.
Scatter Diagram :
Advertising
Cost ( x )
12 8 10 5 12 14 11 8 6 ∑x = 86; ∑X2= 894
Sales ( y ) 20 12 15 10 18 20 18 10 11
∑y = 134; ∑Y2= 2,138
(x)(y) 240 96 150 50 216 280 198 80
66 ∑xy = 1,376; n = 9
∑xy = 1,376

Solve for Pearson r correlation:

r = 9 (1,376 ) – (86) (134) .

√ [9(894) - (86) 2][9(2,138) – (134)2]


r= __12,384 – 11,524______ .
; r = 860 / √ [650][1,286]
√[8,046 – 7,396][19,242 – 17956] There is a very high correlation
r = 860 = 860 = 0.94 between the advertising cost and the
sales.
914.28
√ 835,900

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