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CORRELATION

Correlation is the study of the linear relationship between two variables, which can be positive or negative, and can be categorized into simple, partial, and multiple correlation based on the number of variables involved. The correlation coefficient, denoted by 'r', measures the strength and direction of this relationship, with values ranging from +1 to -1. Karl Pearson's Coefficient of Correlation is a widely used method for assessing linear correlation, though it has limitations such as assuming linearity and being affected by extreme values.

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3 views

CORRELATION

Correlation is the study of the linear relationship between two variables, which can be positive or negative, and can be categorized into simple, partial, and multiple correlation based on the number of variables involved. The correlation coefficient, denoted by 'r', measures the strength and direction of this relationship, with values ranging from +1 to -1. Karl Pearson's Coefficient of Correlation is a widely used method for assessing linear correlation, though it has limitations such as assuming linearity and being affected by extreme values.

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mdi181885
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CORRELATION

Definition

• Study of the linear relationship between two variables is known as correlation.


• If there are two variables and changes in the value of one variable will affect the value of the
other variable, then both the variables are correlated.
• Correlation is a statistical tool used to measure the relationship between two sets of variables
and express each in a precise manner.
• According to Croxton and Cowden, ‘The appropriate statistical tool for discovering and
measuring the relationship of quantitative nature and expressing it in brief formula is known
as correlation”.

Types of Correlation

❖ Positive Correlation and Negative Correlation

Depending on the direction of change of the variables, correlation may be positive or negative.

1) Positive Correlation: Correlation is positive when two variables vary in the same direction.

For example, consider the correlation between sales and expenses of a firm.

2) Negative Correlation: Two variables are said to be negatively correlated when both the variables
vary in the opposite direction.
When one variable increases then other variable decreases and vice versa is also a negative
correlation.

For example, consider the correlation between production and price of crop.

❖ Linear Correlation & Non-Linear (Curvilinear) Correlation

On the basis of constancy of the ratio of change between the variable, correlation may be linear or
non-linear.

1) Linear Correlation: In a linear correlation, change in the values of one variable has a fixed
ratio to the variation in the values of other variable.

2) Non-Linear (Curvilinear)- Correlation: In a non-linear correlation, change in values of one


variable does not have a fixed ratio to the variation in the value of other variable.

❖ Simple, Partial and Multiple Correlation


Depending on the number of variables studied, it can be categorized into three types:

1) Simple Correlation: When we measure the linear relationship between two variables then this
interpretation is known as simple correlation,.
e.g., relationship between sales and expenses, income and consumption etc.

2) Partial Correlation: If we have various related variables and try to find out the relationship
between two variables then it is known as partial correlation.

3) Multiple Correlation: It is defined as the measurement of the effect of multiple variables on


one variable.

For example, find the relationship of rainfall and temperature on the yield of wheat.

Correlation Coefficient

❖ Correlation Coefficient is defined as the measurement of relationship b/w two variable.


❖ It is denoted by “r”.
❖ It values lies from +1 to -1.
+1 value:- perfect + correlation.
-1 value:- perfect – correlation.
0 value:- no correlation.

Karl Pearson’s Coefficient of Correlation.

❖ It is used to measure the linear correlation b/w two continuous variable.


❖ It is most widely used method which measure the strength and direction of linear relationship
b/w two variable.
❖ This technique is known as Pearsonian Coefficient of Correlation
❖ It is denoted by “r”.

Advantages

1. The main advantage of the Karl Pearson’s coefficient of correlation is that it gives the result
in one value.
2. Also summarizes the degree of correlation and direction

Disadvantages

1) Every time assumes only a linear relationship between variables.


2) Interpreting the value of correlation coefficient (r) is difficult.
3) Significance of Correlation coefficient (r) is affected by the extreme values.
4) It is a timec onsuming method.
5) Does not convey the cause-and-effect relationship.
EXAMPLE
MULTIPLE CORRELATION

❖ The multiple correlation is a measure of linear relationship between a dependent


variable and a number of independent variables.
❖ It is represented by R and can have any value between 0 and 1.
❖ Multiple correlation is denoted by Ra.bc where “a” is dependent and “b,c” is in
dependent.

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