Assignment on Correlation analysis

Name: Md. Arafat Rahman

Correlation Analysis
The relationship between two or multiple variables will be measured using correlation analysis.
The measurement that you carry out would be called as correlation coefficient or correlation
index. This is a technique that is widely used to measure the relationships between different
variables and its closeness. If a small or a major change in a variable would change another
variable, then these two variables are said to be correlated.

Correlation Analysis
The relationship between two or multiple variables will be measured using correlation analysis.
The measurement that you carry out would be called as correlation coefficient or correlation
index. This is a technique that is widely used to measure the relationships between different
variables and its closeness. If a small or a major change in a variable would change another
variable, then these two variables are said to be correlated.

Meaning
 Correlation is the most popular statistical measure that indicates the relationship between
two or more Variables.
 It is concerned with finding:
 Whether or not the relationship exists?
 Degree of the correlation?
 Direction of relationship within the variables (Director indirect)?
 Relationship is strong or weak?

Examples
 Relationship between income and years of experience.
 Relationship between amount of rainfall and yield of
rice.
 Relationship between price and demand of a commodity.
 Relationship between nature of work and motivation to
 Work.
 Relationship between height and weight.
Scope of Correlation Analysis
 The existence of correlation between two (or more). Variables only imply that these
variables:
 Either tends to increase or decreased together. An increase (or decrease) in one is
accompanied by
 The corresponding decrease (or increase) in the other.
 Correlation analysis does not answer the questions like why there is cause and effect
between two variables.
 It may be due to following reasons:
 One of the variables may be affecting the other. A correlation calculated from the
data on demand and price will only show that degree of association between
demand and price is high. It will not show why it happens.
 The two variables may act upon each other. Cause and effect is here also, but it is
difficult to find which variable is independent and which is dependent.
Importance of Correlation Analysis
 Measures the degree of relation i.e., whether it ispositive or negative.
 Estimating values of variables i.e., if variables are highly correlated then we can find value
of variable with the help of given value of variable.
 Helps in understanding economic behavior.

Stages to Solve Correlation Problem

 Testing whether it is significant.
 Establishing the cause and effect relation, if any.

Uses of Correlation Analysis

 It is used in deriving the degree and direction of relationship within the variables.

 It is used in reducing the range of uncertainty in matter of prediction.

 It is used in presenting the average relationship between any two variables through a
single value of coefficient of correlation.

 Correlation analysis helps to estimate the future values.

Importance of Correlation Analysis

 Measures the degree of relation i.e., whether it ispositive or negative.
  Estimating values of variables i.e., if variables are highly correlated then we can find value
of variable with the help of given value of variable.
 Helps in understanding economic behavior.

Stages to Solve Correlation Problem

 Testing whether it is significant.

 Establishing the cause and effect relation, if any.

Uses of Correlation Analysis

 It is used in deriving the degree and direction of relationship within the variables.

 It is used in reducing the range of uncertainty in matter of prediction.

 It is used in presenting the average relationship between any two variables through a
single value of coefficient of correlation.

 Correlation analysis helps to estimate the future values.

Correlation equation

Properties of Correlation coefficient (r)

 r always lies between -1 and +1, i.e., −1 ≤ 𝑟 ≤ 1.

 Two independent variables are uncorrelated but converse is not true.

  𝑟 is independent of change in origin and scale.

 r is the geometric mean of two regression coefficients.

There are different types of correlations. Few of them include

 Positive correlation: The two variables are known to be correlated in a positive manner
if the direction in which both the variables are changed is one and the same. Positive
correlation is the positive relationship between two variables. In positive correlation, the
movements of variables are positively linked, which means if one variable goes up the
other variable also goes up, and if one variable goes down then the other variable also
goes down.

 Negative correlation: If the change in the direction of variables is opposite, then it is

termed as negative correlation. A negative correlation occurs when the one variable
increases then the variable decreases. That is, both variables move in the opposite
direction.

 Linear correlation: If the amount of change between two variables is constant, then it is
called as linear correlation. Correlation is said to be linear if the change in one variable
result in the constant change in the other variable.

 Non-linear correlation: When the change in one variable is not constantly having a
change in the other variable, then it is termed as non-linear correlation. Correlation is said
to be nonlinear/curvilinear if the amount of change in one variable is not in a constant
ratio to the change in the other variable.

 Simple Correlation: when correlation is concerned only two variables then it is known
as simple correlation.

 Multiple Correlations: When we consider more than two variables at a time then the
correlation is known as multiple correlations.
 Partial Correlation When we have more than two variables in a study, but we consider
only two variables for influencing each other- where the other variables are considered
constant, then the correlation is termed as partial correlation.

Applications of Correlation Analysis

Correlation would be used in a wide range of applications. Few of them include the following:
  Prediction: Correlation will help you to measure the relationship by thoroughly
examining the further variables. This will let you to predict the data.
 Validity: This will validate the data and predict the future data. The data should stick to
the relation that is established. This is performed with the help of concurrent validity.
 Reliability: Correlation will help you to determine the data reliability. There are two
different types of tests that are performed to improve the reliability of the data. There
include - test-retest reliability and the other is inter-rater reliability.
 Theory verification: Correlation will help you to determine verification, i.e. proof for
the explanation given theoretically.

Advantages of Correlation Analysis

1. Correlation will allow the researchers to carry out the investigation with the help of
correlation method. The researcher can thoroughly analyze the information and find the
areas when it is fluctuating or changing. The researcher can take a look to find out the
reason for the fluctuation.
2. Correlation will give a clear cut insight to the researcher to find the relationship and
reliability of data. This helps him/her to prepare a plan and work accordingly.

Interpretation Guideline:
Coefficient of Determination
 The coefficient of determination is a measure used in statistical analysis that assesses
how well a model explains and predicts future outcomes.

Advantages of Correlation Analysis

1. Correlation will allow the researchers to carry out the investigation with the help of
correlation method. The researcher can thoroughly analyze the information and find the
areas when it is fluctuating or changing. The researcher can take a look to find out the
reason for the fluctuation.
2. Correlation will give a clear cut insight to the researcher to find the relationship and
reliability of data. This helps him/her to prepare a plan and work accordingly.

Limitations of Correlations
 Correlation is not and cannot be taken to imply causation. Even if there is a very strong
association between two variables we cannot assume that one causes the other.
 Correlation does not allow us to go beyond the data that is given.
 Extreme values affect the value of the coefficient of correlation.
 It assumes the linear relationship between the two variables, whether such relationship
exist or not.