Unit-III

UNIT III : Correlation & Regression Analysis

Correlation Analysis: Rank Method & Karl

Pearson's Coefficient of Correlation and Properties
of Correlation.
Regression Analysis: Fitting of a Regression
Line and Interpretation of Results, Properties of
Regression Coefficients and Relationship between
Regression and Correlation.
CORRELATION
Correlation
◼key concepts:
Types of correlation
Methods of studying correlation
a) Scatter diagram
b) Karl pearson’s coefficient of correlation
c) Spearman’s Rank correlation coefficient
d) Method of least squares
 Correlation
◼ Correlation: The degree of relationship between the
variables under consideration is measure through the
correlation analysis.
◼ The measure of correlation called the correlation coefficient
◼ The degree of relationship is expressed by coefficient which
range from correlation ( -1 ≤ r ≥ +1)
◼ The direction of change is indicated by a sign.
◼ The correlation analysis enable us to have an idea about the
degree & direction of the relationship between the two
variables under study.
 Correlation
◼ Correlation is a statistical tool that helps
to measure and analyze the degree of
relationship between two variables.
◼ Correlation analysis deals with the
association between two or more
variables.
 Correlation & Causation
◼ Causation means cause & effect relation.
◼ Correlation denotes the interdependency among the
variables for correlating two phenomenon, it is essential
that the two phenomenon should have cause-effect
relationship,& if such relationship does not exist then the
two phenomenon can not be correlated.
◼ If two variables vary in such a way that movement in one
are accompanied by movement in other, these variables
are called cause and effect relationship.
◼ Causation always implies correlation but correlation does
not necessarily implies causation.
 Types of Correlation
Type I

Correlation

Positive Correlation Negative Correlation

 Types of Correlation Type I
◼ Positive Correlation: The correlation is said to
be positive correlation if the values of two
variables changing with same direction.
Ex. Pub. Exp. & sales, Height & weight.
◼ Negative Correlation: The correlation is said to
be negative correlation when the values of
variables change with opposite direction.
Ex. Price & qty. demanded.
 Direction of the Correlation
◼ Positive relationship – Variables change in the
same direction.
◼ As X is increasing, Y is increasing
Indicated by
◼ As X is decreasing, Y is decreasing
sign; (+) or (-).
◼ E.g., As height increases, so does weight.
◼ Negative relationship – Variables change in
opposite directions.
◼ As X is increasing, Y is decreasing
◼ As X is decreasing, Y is increasing

◼ E.g., As TV time increases, grades decrease

 More examples
◼ Positive relationships ◼ Negative relationships:
◼ water consumption ◼ alcohol consumption
and temperature. and driving ability.
◼ study time and ◼ Price & quantity
grades. demanded
Types of Correlation
Type II

Correlation

Simple Multiple

Partial Total
 Types of Correlation Type II
◼ Simple correlation: Under simple correlation
problem there are only two variables are studied.
◼ Multiple Correlation: Under Multiple
Correlation three or more than three variables
are studied. Ex. Qd = f ( P,PC, PS, t, y )
◼ Partial correlation: analysis recognizes more
than two variables but considers only two
variables keeping the other constant.
◼ Total correlation: is based on all the relevant
variables, which is normally not feasible.
Types of Correlation
Type III

Correlation

LINEAR NON LINEAR

 Types of Correlation Type III
◼ Linear correlation: Correlation is said to be linear
when the amount of change in one variable tends to
bear a constant ratio to the amount of change in the
other. The graph of the variables having a linear
relationship will form a straight line.
Ex X = 1, 2, 3, 4, 5, 6, 7, 8,
Y = 5, 7, 9, 11, 13, 15, 17, 19,
Y = 3 + 2x
◼ Non Linear correlation: The correlation would be
non linear if the amount of change in one variable
does not bear a constant ratio to the amount of change
in the other variable.
Methods of Studying Correlation

◼ Scatter Diagram Method

◼ Graphic Method
◼ Karl Pearson’s Coefficient of
Correlation
◼ Spearmen's rank Difference
method of correlation
Scatter Diagram Method

◼ Scatter Diagram is a graph of observed

plotted points where each points
represents the values of X & Y as a
coordinate. It portrays the relationship
between these two variables graphically.
 A perfect positive correlation
Weight
Weight
of B
Weight A linear
of A
relationship

Height
Height Height
of A of B
High Degree of positive correlation
◼ Positive relationship
r = +.80

Weight

Height
 Degree of correlation
◼ Moderate Positive Correlation

r = + 0.4
Shoe
Size

Weight
 Degree of correlation
◼ Perfect Negative Correlation

r = -1.0
TV
watching
per
week

Exam score
 Degree of correlation
◼ Moderate Negative Correlation
r = -.80
TV
watching
per
week

Exam score
 Degree of correlation
◼ Weak negative Correlation

Shoe
Size r = - 0.2

Weight
 Degree of correlation
◼ No Correlation (horizontal line)

r = 0.0
IQ

Height
 Degree of correlation (r)
r = +.80 r = +.60

r = +.40 r = +.20
 2) Direction of the Relationship
◼ Positive relationship – Variables change in the
same direction.
◼ As X is increasing, Y is increasing
Indicated by
◼ As X is decreasing, Y is decreasing
sign; (+) or (-).
◼ E.g., As height increases, so does weight.
◼ Negative relationship – Variables change in
opposite directions.
◼ As X is increasing, Y is decreasing
◼ As X is decreasing, Y is increasing

◼ E.g., As TV time increases, grades decrease

Advantages of Scatter Diagram
◼ Simple & Non Mathematical method
◼ Not influenced by the size of extreme
item
◼ First step in investing the relationship
between two variables
 Disadvantage of scatter diagram

Can not adopt the an exact degree of

correlation
 Karl Pearson's
Coefficient of Correlation
◼ Pearson’s ‘r’ is the most common
correlation coefficient.
◼ Karl Pearson’s Coefficient of Correlation
denoted by- ‘r’ The coefficient of
correlation ‘r’ measure the degree of
linear relationship between two variables
say x & y.
 Karl Pearson's
Coefficient of Correlation
◼ Karl Pearson’s Coefficient of
Correlation denoted by- r
-1 ≤ r ≥ +1
◼ Degree of Correlation is expressed by a
value of Coefficient
◼Direction of change is Indicated by sign
( - ve) or ( + ve)
 Karl Pearson's
Coefficient of Correlation
◼ When deviation taken from actual mean:
r(x, y)= Σxy /√ Σx² Σy²
◼ When deviation taken from an assumed
mean:
r= N Σdxdy - Σdx Σdy
√N Σdx²-(Σdx)² √N Σdy²-(Σdy)²
 Direct Method
Calculate the coefficient of correlation from the
following data through Karl Pearson's Method-
X: 12 9 8 10 11 13 7
Y: 14 8 6 9 11 12 3

Self Practice
Calculate Karl Person’s Correlation coefficient for
the following data-
X: 6 2 10 4 8
Y: 9 11 5 8 7
Short Cut Method
 Procedure for computing the correlation
coefficient

◼ Calculate the mean of the two series ‘x’ &’y’

◼ Calculate the deviations ‘x’ &’y’ in two series from their
respective mean.
◼ Square each deviation of ‘x’ &’y’ then obtain the sum of
the squared deviation i.e.∑x2 & .∑y2
◼ Multiply each deviation under x with each deviation under
y & obtain the product of ‘xy’.Then obtain the sum of the
product of x , y i.e. ∑xy
◼ Substitute the value in the formula.
 Interpretation of Correlation
Coefficient (r)
◼ The value of correlation coefficient ‘r’ ranges
from -1 to +1
◼ If r = +1, then the correlation between the two
variables is said to be perfect and positive
◼ If r = -1, then the correlation between the two
variables is said to be perfect and negative
◼ If r = 0, then there exists no correlation between
the variables
 Properties of Correlation coefficient
◼ The correlation coefficient lies between -1 & +1
symbolically ( - 1≤ r ≥ 1 )
◼ The correlation coefficient is independent of the
change of origin & scale.
◼ The coefficient of correlation is the geometric mean of
two regression coefficient.
r = √ bxy * byx
The one regression coefficient is (+ve) other regression
coefficient is also (+ve) correlation coefficient is (+ve)
 Assumptions of Pearson’s
Correlation Coefficient
◼ There is linear relationship between two
variables, i.e. when the two variables are
plotted on a scatter diagram a straight line
will be formed by the points.
◼ Cause and effect relation exists between
different forces operating on the item of
the two variable series.
Advantages of Pearson’s Coefficient

◼ It summarizes in one value, the

degree of correlation & direction
of correlation also.
Limitation of Pearson’s Coefficient

◼ Always assume linear relationship

◼ Interpreting the value of r is difficult.
◼ Value of Correlation Coefficient is
affected by the extreme values.
◼ Time consuming methods
 Coefficient of Determination
◼ The convenient way of interpreting the value of
correlation coefficient is to use of square of
coefficient of correlation which is called
Coefficient of Determination.
◼ The Coefficient of Determination = r2.
◼ Suppose: r = 0.9, r2 = 0.81 this would mean that
81% of the variation in the dependent variable
has been explained by the independent variable.
 Coefficient of Determination
◼ The maximum value of r2 is 1 because it is
possible to explain all of the variation in y but it
is not possible to explain more than all of it.
◼ Coefficient of Determination = Explained
variation / Total variation
Coefficient of Determination: An example
◼ Suppose: r = 0.60
r = 0.30 It does not mean that the first
correlation is twice as strong as the second the
‘r’ can be understood by computing the value of
r2 .
When r = 0.60 r2 = 0.36 -----(1)
r = 0.30 r2 = 0.09 -----(2)
This implies that in the first case 36% of the total
variation is explained whereas in second case
9% of the total variation is explained .
 Spearman’s Rank Coefficient of
Correlation
◼ When statistical series in which the variables
under study are not capable of quantitative
measurement but can be arranged in serial order,
in such situation pearson’s correlation coefficient
can not be used in such case Spearman Rank
correlation can be used.
◼ R = 1- (6 ∑D2 ) / N (N2 – 1)
◼ R = Rank correlation coefficient
◼ D = Difference of rank between paired item in two series.
◼ N = Total number of observation.
 Interpretation of Rank
Correlation Coefficient (R)
◼ The value of rank correlation coefficient, R
ranges from -1 to +1
◼ If R = +1, then there is complete agreement in
the order of the ranks and the ranks are in the
same direction
◼ If R = -1, then there is complete agreement in
the order of the ranks and the ranks are in the
opposite direction
◼ If R = 0, then there is no correlation
 Rank Correlation Coefficient (R)
a) Problems where actual rank are given.
1) Calculate the difference ‘D’ of two Ranks
i.e. (R1 – R2).
2)Square the difference & calculate the sum of
the difference i.e. ∑D2
3)Substitute the values obtained in the
formula.
 Rank Correlation Coefficient
b) Problems where Ranks are not given :If the
ranks are not given, then we need to assign
ranks to the data series. The lowest value in the
series can be assigned rank 1 or the highest
value in the series can be assigned rank 1. We
need to follow the same scheme of ranking for
the other series.
Then calculate the rank correlation coefficient in
similar way as we do when the ranks are given.
 Rank Correlation Coefficient (R)
◼ Equal Ranks or tie in Ranks: In such cases
average ranks should be assigned to each
individual. R = 1- (6 ∑D2 ) + AF / N (N2 – 1)

AF = 1/12(m13 – m1) + 1/12(m23 – m2) +…. 1/12(m23 – m2)

m = The number of time an item is repeated
Merits Spearman’s Rank Correlation
◼ This method is simpler to understand and easier
to apply compared to karl pearson’s correlation
method.
◼ This method is useful where we can give the
ranks and not the actual data. (qualitative term)
◼ This method is to use where the initial data in
the form of ranks.
Limitation Spearman’s Correlation
◼ Cannot be used for finding out correlation in a
grouped frequency distribution.
◼ This method should be applied where N
exceeds 30.
Advantages of Correlation studies
◼ Show the amount (strength) of relationship
present
◼ Can be used to make predictions about the
variables under study.
◼ Can be used in many places, including natural
settings, libraries, etc.
◼ Easier to collect co relational data
 Regression Analysis
◼ Regression Analysis is a very
powerful tool in the field of statistical
analysis in predicting the value of one
variable, given the value of another
variable, when those variables are
related to each other.
 Regression Analysis
◼ Regression Analysis is mathematical measure of
average relationship between two or more
variables.
◼ Regression analysis is a statistical tool used in
prediction of value of unknown variable from
known variable.
 Advantages of Regression Analysis
◼ Regression analysis provides estimates of
values of the dependent variables from the
values of independent variables.
◼ Regression analysis also helps to obtain a
measure of the error involved in using the
regression line as a basis for estimations .
◼ Regression analysis helps in obtaining a
measure of the degree of association or
correlation that exists between the two variable.
 Assumptions in Regression Analysis
◼ Existence of actual linear relationship.
◼ The regression analysis is used to estimate the
values within the range for which it is valid.
◼ The relationship between the dependent and
independent variables remains the same till the
regression equation is calculated.
◼ The dependent variable takes any random value but
the values of the independent variables are fixed.
◼ In regression, we have only one dependant variable
in our estimating equation. However, we can use
more than one independent variable.
 Regression line
◼ Regression line is the line which gives the best
estimate of one variable from the value of any
other given variable.
◼ The regression line gives the average
relationship between the two variables in
mathematical form.
◼ The Regression would have the following
properties: a) ∑( Y – Yc ) = 0 and
b) ∑( Y – Yc )2 = Minimum
 Regression line
◼ For two variables X and Y, there are always two
lines of regression –
◼ Regression line of X on Y : gives the best
estimate for the value of X for any specific
given values of Y
◼ X=a+bY a = X - intercept
◼ b = Slope of the line
◼ X = Dependent variable
◼ Y = Independent variable
 Regression line
◼ For two variables X and Y, there are always two
lines of regression –
◼ Regression line of Y on X : gives the best
estimate for the value of Y for any specific given
values of X
◼ Y = a + bx a = Y - intercept
◼ b = Slope of the line
◼ Y = Dependent variable
◼ x= Independent variable
 The Explanation of Regression Line
◼ In case of perfect correlation ( positive or
negative ) the two line of regression coincide.
◼ If the two R. line are far from each other then
degree of correlation is less, & vice versa.
◼ The mean values of X &Y can be obtained as
the point of intersection of the two regression
line.
◼ The higher degree of correlation between the
variables, the angle between the lines is
smaller & vice versa.
 Regression Equation / Line
& Method of Least Squares
◼ Regression Equation of y on x
Y = a + bx
In order to obtain the values of ‘a’ & ‘b’
∑y = na + b∑x
∑xy = a∑x + b∑x2
◼ Regression Equation of x on y
X = c + dy
In order to obtain the values of ‘c’ & ‘d’
∑x = nc + d∑y
∑xy = c∑y + d∑y2
 Regression Equation / Line when
Deviation taken from Arithmetic Mean
◼ Regression Equation of y on x:
Y = a + bx
In order to obtain the values of ‘a’ & ‘b’
a = Y – bX b = ∑xy / ∑x2
◼ Regression Equation of x on y:
X = c + dy
c = X – dY d = ∑xy / ∑y2
 Regression Equation / Line when
Deviation taken from Arithmetic Mean
◼ Regression Equation of y on x:
Y – Y = byx (X –X)
byx = ∑xy / ∑x2
byx = r (σy / σx )

◼ Regression Equation of x on y:
X – X = bxy (Y –Y)
bxy = ∑xy / ∑y2
bxy = r (σx / σy )
Properties of the Regression Coefficients
◼ The coefficient of correlation is geometric mean of the two
regression coefficients. r = √ byx * bxy
◼ If byx is positive than bxy should also be positive & vice
versa.
◼ If one regression coefficient is greater than one the other
must be less than one.
◼ The coefficient of correlation will have the same sign as
that our regression coefficient.
◼ Arithmetic mean of byx & bxy is equal to or greater than
coefficient of correlation. byx + bxy / 2 ≥ r
◼ Regression coefficient are independent of origin but not of
scale.