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COMPILED BY

MUTHAMA, JAPHETH MUTINDA

INTRODUCTION

After going through this presentation, the listener is expected to:

1. Be able to present the results of analysed research data.

2. Make effective interpretation of the relationship between research variables

3. Draw implications or inferences from the variables in the study model

Definition

Correlation (r) is the statistical measure of how two Variables move in

relation to each other.

It measures the relative strength of the relationship between two

variables

Correlation is computed into what is known as the correlation

coefficient,

which

ranges

between

-1

and

+1.

Coefficient of correlation

variables

The correlation, if any, found through this approach is applied in a

statistical method to deal with the formulation of mathematical model

depicting relationship amongst variables which can be used for the purpose

of prediction of the values of dependent variable, given the values of the

independent variable

the relationship between X and Y.

-1 < r < +1

Strong negative

relationship

Strong positive

relationship

r = 0 : Indicates no linear relationship between the research variables

-1 < r < +1

The + and signs are used for explaining the positive linear correlations

and negative linear correlations respectively

2) Moderate correlation: r is between 0.30 and 0.70

or r is between 0.30 and 0.70

1.

2.

3.

SCATTER DIAGRAMS

This is a graph in which the individual data points are plotted in two-dimensions as

presented below;

Moderate fit

Points clustered closely around a line show a strong correlation. The line is a good

predictor (good fit) with the data. The more spread out the points, the weaker the

correlation, and the less good the fit.

The line is a REGRESSSION line (Y = a + bX)

NOTE:

1. The coefficient of determination is a measure of how well the regression

line represents the data and therefore represents the percent of the data that

is the closest to the line of best fit

2. If the regression line passes exactly through every point on the scatter

plot, it would be able to explain all of the variation

3. The further the line is away from the points, the less it is able to explain

the variation

Cont

If the r = 0.922, then r 2 = 0.850

Which means that 85% of the total variation in y can be explained by the

linear relationship between x and y (as described by the regression

equation)

This therefore means that, the other 15% of the total variation in y remains

unexplained

correlation)

This is the most widely used method of measuring the degree of

relationship between two variables.

Its defined as the measure of the strength of the linear relationship between

two variables that is defined in terms of the (sample) covariance of the

variables divided by their (sample) standard deviations.

This coefficient assumes the following:

(ii) that the two variables are casually related which means that one of the

variables is independent and the other one is dependent

(iii) A large number of independent causes are operating in both variables

so as to produce a normal distribution.

cov( x, y )

r

x . y

OR

n XY X

r xy

n X

( X ) 2 n Y 2 ( Y ) 2

- Individual variability of X and Y variables- At the bottom

Illistration

From the following data find the coefficient of correlation by Karl

Pearson method

X: 6, 2, 10, 4, 8

Y: 9, 11, 5, 8, 7

Sol.cont.

X

30

6

N

5

Y 40

8

N

5

x. y

26

26

0.92

2

2

40.20

800

x

.

y

This is the technique of determining the degree of correlation between two

variables incase of ordinal data where ranks are given to different values of

the variables.

The main objective of the coefficient is to determine the extend to which

the two sets of ranking are similar or dissimilar.

This method is only used to determine correlation when the data is not

available in numerical form

Thus when the values of the two variables are converted to their ranks and

the correlation is obtained, the correlation is known as rank correlation

Spearmans rank correlation coefficient can be calculated when

Actual ranks given

Ranks are not given but grades are given but not repeated

Ranks are not given and grades are given and repeated

R 1

6 D 2

N (N

1)

where

D Rx R y

Rx rank .of . X

R y rank .of . y

Illustration

Calculate the spearmans rank correlation coefficient between

advertisement cost and sales from the following data

Advertisement cost : 39, 65, 62, 90, 82, 75, 25, 98, 36, 78

Sales(Shs):

47, 53, 58, 86, 62, 68, 60, 91, 51, 84

R-x

R-y

39

47

10

-2

65

53

-2

62

58

90

86

82

62

-2

75

68

25

60

10

16

98

91

36

51

78

84

D2

30

Cont.

R 1

6 D

N N

6(30)

R 1 3

10 10

180

R 1

990

R 0.82

3

Nonlinear Relationships

In cases where there is clear evidence of a nonlinear relationship DO NOT

use Pearsons Product Moment Correlation ( r ) to summarize the strength

of the relationship between Y and X.

Conclusions

Correlation is the linear association between two numeric variables e.g

variables X and Y.

The correlation (r) ranges from -1 to +1

where

-1 < r < 1

If r < 0 then there is a negative correlation between X and Y, i.e. as X

increases Y generally decreases

If r > 0 then there is a positive correlation between X and Y, i.e. as X

increases Y generally increases

The close r is to 0 the weaker the linear association between X and Y.

The value of r ranges between ( -1) and ( +1)

The value of r denotes the strength of the association as illustrated

by the following diagram.

strong

-1

intermediate

-0.75

-0.25

weak

weak

indirect

perfect

correlation

intermediate

0.25

strong

0.75

Direct

no relation

perfect

correlation

Negative and positive correlations

No Relationship (r = .00)

Information about Explanatory Flexibility tells you nothing about Emotional

Insight

1

-.5

0.0

.5

Explanatory Flexibility

1.0

1.5

2.0

2.5

3.0

3.5

REFERENCES

Dhrymes, P. J.: Econometrics: Statistical Foundations and Applications,

Harper & Row, New York, 1970.

Fomby, Thomas B., Carter R. Hill, and Stanley R. Johnson: Advanced

Econometric Methods, Springer-Verlag, New York, 1984.

Goldberger, A. S.: A Course in Econometrics, Harvard University Press,

Cambridge, Mass., 1991.

Harvey, A. C.: The Econometric Analysis of Time Series, 2d ed., MIT Press,

Cambridge, Mass., 1990.

Kothari CR, Research methodology: an introduction. New Delhi, Vikas

publishing house Pvt ltd 2000

Emory C William, Business research methods. Illinois: Richard D. Irwin,

Inc. Homewood 2001

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