Correlation Analysis:

The method used to figure out if there’s a relationship among two variables, the magnitude
and direction of the relationship is what is known as Correlation analysis. It is denoted by
Pearson’s Product Moment Correlation, r. It ranges from +1 to -1. If its positive and close
to 0 or less than 0.5 then the relation is weakly positive. Otherwise if its close to 1 then the
relationship is said to be strongly positive. If correlation is 1 or -1 then it indicates a
perfectly positive or negative relationship amongst the variables. Also, if the value is more
than -0.5 and close to zero then it’s said to be weakly negative. However, if its less than
-0.5 and closer to -1 then it indicates a weakly negative relationship amongst the variables.
Also, if the correlation is zero, then there is no relationship amongst the variables. The
relationship criteria is presented below in a table:

Range of Correlation  Nature of Relationship

.99 to 1.00  Perfectly positive correlation

.51 to .98  Strong positive correlation

.01 to .50  Weak positive correlation

0  No relationship

-.99 to -1.00  Perfectly negative correlation

-.51 to -.98  Strong negative correlation

-.01 to -.50  Weakly negative correlation

We have already mentioned in our report that our dependent variable is ROA. The other
variables in our report that is Liquidity, Deposit, Asset Size, Capital Adequacy and
Inflation are all independent variables. Now let’s take a look at the relationship between
the dependent variable and each of the independent variables in our correlation analysis
from the table below:

For our analysis purpose we will be focusing on the from the table above-

Relation of ROA and Liquidity-

The relationship between ROA and Liquidity derived is Perfectly Strong negative correlation
according to the criteria table as it’s -0.061102. It is negative and at the same time falls between
-.51 and -.98 
Relation of ROA and Deposit-
The relationship between ROA and Inflation Rate derived is Perfectly Weakly negative
correlation according to the criteria table as it’s -0.367560. It is negative and at the same time
falls between -.01 and -.50.
Relation of ROA and Asset Size-
The relationship between ROA and Asset Quality derived is Perfectly Weak positive correlation
according to the criteria table as it’s 0.427461. It is positive and at the same time falls between
.01 and .50.

Relation of ROA and Capital Adequacy-

The relationship between ROA and Capital Adequacy derived is Perfectly Strong positive
correlation according to the criteria table as it’s 0.656491. It is positive and at the same time falls
between .51 and .98 
Relation of ROA and Inflation-
The relationship between ROA and Asset Size derived is Perfectly Weak positive correlation
according to the criteria table as it’s 0.191166. It is Positive and at the same time falls between .
01and.50 

Regression Analysis:
4.6.3.1 Equation Analysis:

For our research work, we have constructed equation will like this (stated in conceptual
framework):

Y= α + β1*Liquidity +β2*Deposite + β3*Asset size + β4* Capital Adequacy + β5*

Inflation + ε

Here, from the result which is given by E-View’s software stated above, we can construct the
regression equation like this:

ROA = -33.13904 + 0.181233*Liquidity - 0.052011 * Deposite + 0.647073* Asset size +

0.422033* Capital Adequacy + 0.069599* Inflation

Coefficient Analysis:

Liquidity Beta Co-efficient: Beta co-efficient of Liquidity is 0.181233 indicates that for
every 1unit increase in Liquidity, ROA will increase by 0.181233.
Deposite Beta Co-efficient: Beta co-efficient of Deposite is -0.052011 indicates that for
every 1unit increase in Deposite, ROA will decrease by 0.052011 or vice versa.
Asset size Beta Co-efficient: Beta co-efficient of Asset size is 0.647073 indicates that for
every 1unit increase in Asset size, ROA will increase by 0.647073.
Capital Adequacy Beta Co-efficient: Beta co-efficient of Capital Adequacy is 0.422033
indicates that for every 1unit increase in Capital Adequacy, ROA will increase by
0.422033.
Inflation Beta Co-efficient: Beta co-efficient of Inflation is 0.069599 indicates that for
every 1unit increase in Inflation, ROA will increase by 0.069599.
Common Variance Analysis:
From the above table of Regression analysis, we see the value of R-squared is 0.673603. This
shows changes in the dependent variable is caused 67.36% of the occasions by all these 5
independent variables (LIQ, DEP, AS, CAP, IR). This value shows that the model fits with our
presented data strongly.

Good Fit Model (F-statistic) Analysis:

The F-stat analysis is used to measure the reliability of the model used in the business
research. Again, the α value is the key here. If the F-stat is more than the α value then the
model is not a good fit, however if the F-stat is less than the α value, then the model is a
good fit. Assuming α as 0.05 as in most general researches, we find that the model used is a
good fit as the F-stat from the table above shows it’s 0.000377 which is less than the α
value.