13- 1

Correlation Analysis

PLAN

1. Scatter diagram. Dependent and independent variables.

2. Calculating and interpretation the coefficient of

correlation, the coefficient of determination, and the
standard error of estimate.

3. Test of hypothesis to determine if the population

coefficient of correlation is different from zero.
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 13- 2
1. Scatter diagram. Dependent and
independent variables
 Correlation Analysis is a group of statistical
techniques used to measure the strength of the
association between two variables.
A Scatter Diagram is a chart that portrays the
relationship between the two variables.
The Dependent Variable (Y) is the variable being
predicted or estimated.
The Independent Variable (X) provides the basis
for estimation. It is the predictor variable.

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 13- 3

2. The Coefficient of Correlation, r

The Coefficient of Correlation (r) is a measure of

the strength of the relationship between two
variables.
It requires interval or ratio-scaled data.

It can range from -1.00 to 1.00.

Values of -1.00 or 1.00 indicate perfect and strong

correlation.
Values close to 0.0 indicate weak correlation.

Negative values indicate an inverse relationship and

positive values indicate a direct relationship.

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 13- 4

Perfect Negative Correlation

Y
10
9
8
7
6
5
4
3
2
1
0
0 1 2 3 4 5 6 7 8 9 10 X

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 13- 5

Perfect Positive Correlation

Y
10
9
8
7
6
5
4
3
2
1
0
0 1 2 3 4 5 6 7 8 9 10 X

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 13- 6

Zero Correlation
Y
10
9
8
7
6
5
4
3
2
1
0
0 1 2 3 4 5 6 7 8 9 10 X

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 13- 7

Strong Positive Correlation

Y
10
9
8
7
6
5
4
3
2
1
0
0 1 2 3 4 5 6 7 8 9 10 X

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 13- 8

Formula for r

We calculate the coefficient of correlation from the

following formulas.

( X  X )(Y  Y )
r
(n  1) s x s y
n(XY )  (X )(Y )

n(X )  (X ) nY  Y  
2 2 2 2

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 13- 9

Coefficient of Determination
The coefficient of determination (r2) is the
proportion of the total variation in the dependent
variable (Y) that is explained or accounted for by
the variation in the independent variable (X).
It is the square of the coefficient of correlation.
It ranges from 0 to 1.

It does not give any information on the direction

of the relationship between the variables.

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 13- 10

EXAMPLE 1
 Dan Ireland, the student body president at
Toledo State University, is concerned about the
cost to students of textbooks. He believes there
is a relationship between the number of pages
in the text and the selling price of the book. To
provide insight into the problem he selects a
sample of eight textbooks currently on sale in
the bookstore. Draw a scatter diagram.
Compute the correlation coefficient.

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 13- 11

EXAMPLE 1 continued

Book Page Price ($)

Into to History 500 84
Basic Algebra 700 75
Into to Psyc 800 99
Into to Sociology 600 72
Bus. Mmgt 400 69
Intro to Biology 500 81
Fund. of Jazz 600 63
Princ. of Nursing 800 93
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 13- 12

Example 1 continued
Scatter Diagram of Number of Pages and Selling Price of Text

100

90
Price ($)

80

70

60
400 500 600 700 800
Page

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 13- 13

Example 1 continued

Book Page Price ($)

X Y XY X2 Y2
Into to History 500 84 42,000 250,000 7,056
Basic Algebra 700 75 52,500 490,000 5,625
Into to Psyc 800 99 79,200 640,000 9,801
Into to Sociology 600 72 43,200 360,000 5,184
Bus. Mmgt 400 69 27,600 160,000 4,761
Intro to Biology 500 81 40,500 250,000 6,561
Fund. of Jazz 600 63 37,800 360,000 3,969
Princ. of Nursing 800 93 74,400 640,000 8,649
Total 4,900 636 397,200 3,150,000 51,606

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 13- 14

Example 1 continued

n(XY )  (X )( Y )
r
n(X 2
)  (X ) 2
nY  Y  
2 2

8(397 ,200 )  (4,900 )( 636 )


8(3,150 ,000  (4,900 ) 8(51,606 )  (636 ) 
2 2

 0.614

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 13- 15
3. Testing the Significance of
the Correlation Coefficient
Tests for Significance
• r is an estimate of the population correlation coefficient r
(rho).
• To test the hypothesis H0: r = 0, the test statistic is:

• The critical value ta is obtained from t-values Distribution

Table using f = n – 2 degrees of freedom for any a.

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 13- 16
Testing the Significance of
the Correlation Coefficient
Steps in Testing if r = 0
• Step 1: State the Hypotheses
Determine whether you are using a one or two-
tailed test and the level of significance (a).
H0: r = 0
H1: r ≠ 0
• Step 2: Calculate the Critical Value for degrees of
freedom f = n -2, look up the critical value ta at
t-values Distribution Table, then calculate

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 13- 17
Testing the Significance of
the Correlation Coefficient
Steps in Testing if r = 0
• Step 3: Make the Decision
If using the t statistic method, reject H0 if
t > ta or t <- ta or
if the p-value < a.

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 13- 18
Testing the Significance of
the Correlation Coefficient
Role of Sample Size
• As sample size increases, the critical value of r
becomes smaller.
• This makes it easier for smaller values of the
sample correlation coefficient to be considered
significant.
• A larger sample does not mean that the correlation
is stronger nor does its significance imply
importance.

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 13- 19
Testing the Significance,
EXAMPLE 1, continued
 The correlation between the number of pages and the
selling price of the book is 0.614. This indicates a
moderate association between the variable.
Test the hypothesis that there is no correlation in the
population. Use a .02 significance level.

 Step 1: H0: The correlation in the population is zero.

H1: The correlation in the population is not zero.

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 13- 20
Testing the Significance,
EXAMPLE 1, continued


Step 2: H0 is rejected if t>3.143 or if t< -3.143.

There are 6 degrees of freedom, found by
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 13- 21

EXAMPLE 1 continued
 To find the value of the test statistic we use:

r n2 .614 8  2
t   1.905
1 r 2 1  (.614 ) 2

Step 3: H0 is not rejected. We cannot reject the

hypothesis that there is no correlation in the population.
The amount of association could be due to chance.

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