Correlation

Analysis
Presented By :
Abinandini Garg(15209811)
Akanska Sodhi(15209811)
Shruti Verma(1520981143)
Tanvi Goel(1520981145)

Introduction to Correlation

If two variables are related to each other in such a

way that change in one causes change in other, then
they are said to be correlated with each other.
In correlation we measure the degree of
relationship between variables and also their
direction.
Measure of correlation is called correlation
coefficient or correlation index.

Example

Relationship between height and weight

Relationship between amount of rainfall and yield
of rice
Relationship between price and demand of a
commodity
Relationship between dose of insulin and blood
sugar.

Types of Correlation

DEGREE OF CORRELATION
S.NO.

Degree of
correlation

Positive

Negative

1.

Perfect
correlation

+1

-1

2.

High degree of
correlation

Between +0.75
to +1

Between -0.75
to -1

3.

Moderate
degree of
correlation

Between +0.25
to + 0.75

Between -0.25
to - 0.75

4.

Low degree of
correlation

Between 0 to
+0.25

Between 0 to 0.25

5.

Absence of
correlation

Methods of studying correlation

Scatter Diagram Method

Scatter Diagram

The simplest method to ascertain relation between

two variable is to prepare dot chart and also called
Scatter Diagram.

For each value of X and Y we plot points and thus

obtaining many points.
With these dots we can get the idea about how
variables are related.

Graphic Method

In this method individual values are

plotted on graph paper.
In this two curves are obtained, one from
X and one from Y.
In we examine the direction and
closeness of two curves.

Karl Pearsons Coefficient of Correlation

It is the most widely used mathematical method of

measuring relationship between two variables.
Also called Pearsons coefficient of correlation.

Assumptions of
Pearsons Coefficient
Their is a linear relationship between the
variables.
We assume that two variables are affected
by large number of independent causes so
as to form normal distribution.
We assume that the variables are
dependent i.e there are forces affecting
the distribution.

Standard Error

Quantify the error in estimation of sampling.

The smaller the value of std. error of estimates , the
closer will be the dots to the regression line and
better the estimates based on the equation for this
line.
S.E. = 1-r2

/ N

Probable Error

Determine the reliability of the value of the

coefficient in so far as it depends on the condition
of random sampling.
Probable error is 0.6745 time of Standard Error
That means Probable error = 0.6745 (S.E.).

Use of probable error

For ex. If ratio of r and P.E. is greater than 6 then

coefficient is reliable, i.e. there is relationship
between variable.
If ratio of r and PE is less than 6 then coefficient is
not reliable, i.e. there is no relationship between
variable.

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.

Cont...

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

Spearmans 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 pearsons 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

Concurrent Deviation
Method

In this we find out the direction of

change of two variables.

Method of Least Square

A statistical technique to determine the line of the

best fit for a model.
The least squares method is specified by an
equation with certain parameters to observed data.
This method is extensively used in regression
analysis and estimation.

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)