Asignment

Submitted To: Mr. Salahudin

Department of Management Sciences, University of Narowal

Submitted by: Ahsan Azam

Roll No: 051

Semester: 8th

Course Title: Statistical Interference

Department: Management Sciences

University of Narowal, Narowal

Definition of Correlation Analysis

The term correlation is a combination of two words Co and relation between two quantities.
Correlation is when, at the time of study of two variables, it is observed that a unit change in one
variable is retaliated by an equivalent change in another variable, i.e. direct or indirect. Or else
the variables are said to be uncorrelated when the movement in one variable does not amount to
any movement in another variable in a specific direction. It is a statistical technique that
represents the strength of the connection between pairs of variables.

Correlation can be positive or negative. When the two variables move in the same direction, i.e.
an increase in one variable will result in the corresponding increase in another variable and vice
versa, then the variables are considered to be positively correlated. 

For instance: profit and investment.

On the contrary, when the two variables move in different directions, in such a way that an
increase in one variable will result in a decrease in another variable and vice versa, This situation
is known as negative correlation. 

For instance: Price and demand of a product.

The measures of correlation are given as under:

 Karl Pearson’s Product-moment correlation coefficient

 Spearman’s rank correlation coefficient
 Scatter diagram
 Coefficient of concurrent deviations

Definition of Regression Analysis

A statistical technique for estimating the change in the metric dependent variable due to the
change in one or more independent variables, based on the average mathematical relationship
between two or more variables is known as regression. It plays a significant role in many human
activities, as it is a powerful and flexible tool which used to forecast the past, present or future
events on the basis of past or present events.

 For instance: On the basis of past records, a business’s future profit can be estimated.

In a simple linear regression, there are two variables x and y, wherein y depends on x or say
influenced by x. Here y is called as dependent, or criterion variable and x is independent or
predictor variable. The regression line of y on x is expressed as under:

y = a + bx
where, a = constant,
b = regression coefficient,
In this equation, a and b are the two regression parameter.

Key Differences Between Correlation and Regression

The points given below, explains the difference between correlation and regression in detail.

I. A statistical measure which determines the co-relationship or association of two

quantities is known as Correlation. Regression describes how an independent variable is
numerically related to the dependent variable.
II. Correlation is used to represent the linear relationship between two variables. On the
contrary, regression is used to fit the best line and estimate one variable on the basis of
another variable.
III. In correlation, there is no difference between dependent and independent variables i.e.
correlation between x and y is similar to y and x. Conversely, the regression of y on x is
different from x on y.
IV. Correlation indicates the strength of association between variables. As opposed to,
regression reflects the impact of the unit change in the independent variable on the
dependent variable.
V. Correlation aims at finding a numerical value that expresses the relationship between
variables. Unlike regression whose goal is to predict values of the random variable on the
basis of the values of fixed variable.