EXCEL 2007: Two-Variable Correlation

A. Colin Cameron, Dept. of Economics, Univ. of Calif. - Davis

This January 2009 help sheet gives inIormation on
Correlation coeIIicient.
Calculation using the Data Analysis Add-in.
Calculation using the CORREL Iunction.
Covariances.
CORRELATION COEFFICIENT
The correlation coefficient between two series, say x and y, equals
Covariance(x,y) / |Sqrt(Variance(x)) * Sqrt(Variance(y))|
where
Covariance(x,y) is the sample covariance between x and y: (1/(n-1)) L
i
(x
i
- xbar)(y
i
- ybar)
Variance(x) is the sample variance oI x: (1/(n-1)) L
i
(x
i
- xbar)
2
Variance(x) is the sample variance oI y: (1/(n-1)) L
i
(y
i
- ybar)
2
CALCULATION USING THE DATA ANALYSIS ADD-IN
This requires the Data Analysis Add-in: see Excel 2007: Access and Activating the Data Analysis Add-in
The data used are in carsdata.xls
We consider only two series, but we could do the same Ior more than two series.
In the Data Group select the Data Analysis Add-in
Select Correlation
Fill out the Correlation dialog box as below
Hit enter yields
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The correlation coeIIicient is 0.894427.
This can be extended to several series.
For example iI there are data in columns A, B, C, D and E then the array chosen is A1:E6 and produces a 5 x 5 table oI
correlations.
CALCULATION USING THE CORREL FUNCTION
This does not require the Data Analysis Add-in
Click on the cell you want result to appear on.
On the Formula Tab select the Function Library group and More Functions and Statistical
Select Correlation and Iill out the dialog box as below
Alternatively directly type CORREL(A1:A6,B1:B6) which yields 0.894427.
Note that Excel dropped the Iirst row (or labesl).
CORREL(A2:A6,B2:B6) yields the same result.
COVARIANCE
This is obtained in a similar way to correlation.
We can use Data Analysis Add-in and Covariance
We can use Iunction CORREL
IFor example, COVAR(A1:A6,B1:B6) yields 0.8.
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