CORRELATION ANALYSIS

14.1 CORRELATION ANALYSIS n = number of pairs of values of x and y

Correlation analysis is a group of techniques used to
measure the strength of the association/relationship between EXERCISES:
variables. 1. A men's tie shop ran 10 sales promotions to determine
the number of men's neckties of a certain type that
14.2 PEARSON CORRELATION COEFFICIENT customers would buy at various prices. Following are the
The degree of linear association/relationship between sales results:
two variables (at least of interval scale) is measured by a Number of Number of
correlation coefficient, denoted by r . It is sometimes called Prices, x ties sold, Prices, x ties sold, y
Pearson correlation coefficient (Pearson product moment y
correlation coefficient) in honor of its developer. If a curved 649 187 899 132
line is needed to express the relationship, other and more 699 149 949 90
complicated measures of the correlation must be used. 749 155 999 99
The correlation coefficient is measured on a scale that 799 148 1,049 69
varies from +1 through 0 to −1. Perfect correlation 849 130 1,099 51
between two variables is expressed by either +1 or −1. Calculate the coefficient of correlation.
Positive values indicate a relationship between x and y
variables such that as values for x increases, values for  y
also increase. Negative values indicate a relationship 2. The following are the numbers of sales contacts made by
9 salespersons during a week and the number of sales made.
between x and y such that as values for x increase, values
Compute the correlation coefficient.
for y decrease. If there is no linear correlation or a weak Sales-
linear correlation, r is  close to 0.  1 2 3 4 5 6 7 8 9
person
FORMULA: Sales 11
71 64 100 105 75 79 82 68
n ∑ xy−∑ x ∑ y contact 0
r= 2 2 Sales 25 14 37 40 18 10 22 12 42
√ n ∑ x − ( ∑ x ) √ n ∑ y −( ∑ y )
2 2

3. Given the following data on the number of hours of study

Interpretation of r : (X) for an examination and the grades (Y) received by a
r Interpretation random sample of 10 students, (a) compute the Spearman
1.0 Perfect (Positive/Negative) Correlation rank correlation coefficient and (b) compute for the Pearson
0.80 – 0.99 Very Strong (Positive/Negative) Correlation
correlation coefficient.
St
0.60 – 0.79 Strong (Positive/Negative) Correlation
u
0.40 – 0.59 Moderate` (Positive/Negative)Correlation X Y
de
0.20 – 0.39 Weak (Positive/Negative)Correlation nt
0.01 – 0.19 Very Weak (Positive/Negative) Correlation 1 5
0.0 No Correlation 8
6
2 4
5
4
14.3 SPEARMAN RANK CORRELATION 3 1 7
Alternatively, the Spearman rank correlation (a non- 1 9
parametric) is used for variables that may be quantitative 4 1 7
discrete or ordered categorical. Observations are replaced 3 2
by their ranks in the calculation of the correlation 5 1 7
coefficient. It is used to determine a possible correlation 0 0
(consistency) between two ordinal variables. 6 5
5
This results in a simple formula for Spearman's rank 4
correlation, r s, 7 1 9
8 4
6 ∑ d2 8 1 8
r s=1−
n(n2−1) 5 5
where: 9 3
2
d = difference in the ranks of the two variables for 3
a given respondent 10 8 6
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