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मुगल चित्रकला

Introduction to Correlation
Correlation is a statistical measure that expresses the extent to which two
variables are linearly related (meaning they change together at a constant rate).

⮚ If two variables are related to each other in such a way change in one
creates a corresponding change in other, then variables are said to be
correlated.
⮚ It’s a common tool for describing simple relationships without making a statement
about cause and effect.

⮚ Correlation is used to test relationships between quantitative variables or

categorical variables.
⮚ The correlation analysis enables us to have an idea about the degree & direction of
the relationship between the two variables under study. The study of how variables
are correlated is called correlation analysis
⮚ Correlation analysis deals with the association between two or more
variables
⮚ Correlations are also tested for statistical significance.

⮚ The measure of correlation called correlation coefficient. The sample correlation

coefficient, r, quantifies the strength of the relationship.

We describe correlations with a unit-free measure called the correlation coefficient

which ranges from -1 to +1 and is denoted by r. Therefore, correlations are typically
written with a key number: r .
● The closer r is to zero, the weaker the linear relationship.
● Positive r values indicate a positive correlation, where the values of both variables
tend to increase together.
● Negative r values indicate a negative correlation, where the values of one variable
tend to increase when the values of the other variable decrease.

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● It is a "Unit-free measure".

Properties of Correlation

The following are the main properties of correlation.

1. Coefficient of Correlation lies between -1 and +1:
The coefficient of correlation cannot take value less than -1 or more than one +1.
Symbolically
-1<=r<= + 1 or | r | <1.
2. Coefficients of Correlation are independent of Change of Origin:
This property reveals that if we add/subtract any constant from all the values of X
and Y, it will not affect the coefficient of correlation.
3. Coefficient of Correlation is independent of Change of Scale:
This property reveals that if we divide or multiply all the values of X and Y, it will not
affect the coefficient of correlation.
4. Co-efficient of correlation measures only linear correlation between X and
Y.

5. If two variables X and Y are independent, coefficient of correlation

between them will be zero.

What Is Covariance?
Covariance measures the directional relationship between the returns on two assets.
A positive covariance means that asset returns move together while a negative
covariance means they move inversely.
Difference between Covariance & Correlation:

Covariance Correlation

Correlation is a measure used to

Covariance is a measure to indicate the extent to
represent how strongly two random
which two random variables change in tandem.
variables are related to each other.

Correlation refers to the scaled form

Covariance is nothing but a measure of correlation.
of covariance.
Correlation on the other hand
Covariance indicates the direction of the linear measures both the strength and
relationship between variables. direction of the linear relationship
between two variables.
Covariance can vary between -∞ and +∞ Correlation ranges between -1 and +1

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Covariance is affected by the change in scale. If all

the values of one variable are multiplied by a
Correlation is not influenced by the
constant and all the values of another variable are
change in scale.
multiplied, by a similar or different constant, then
the covariance is changed.
Correlation is dimensionless, i.e. It’s
Covariance assumes the units from the product of
a unit-free measure of the
the units of the two variables.
relationship between variables.

Types Of Correlation

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1. Based on the direction of change of variables:

a) Positive Correlation

b) Negative Correlation

c) No Correlation

a) A positive correlation is a relationship between two variables in which both

variables move in the same direction.

b) A negative correlation is a relationship between two variables in which an

increase in one variable is associated with a decrease in the other.

c) A zero correlation indicates that there is no relationship between the two variables.

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2. Based on number of variables studied:

a) Simple Correlation
b) Partial Correlation
c) Multiple Correlation

a) The correlation is said to be simple when only two variables are studied.

b) The correlation is either multiple or partial when three or more variables are
studied. But in partial correlation, the strength of a relationship is measured
between two variables, while controlling for the effect of one or more other
variables.

c) The correlation is said to be Multiple when three variables are studied

simultaneously.

3. Based on the constancy of ratio of change between variables:

a) Linear Correlation-
The correlation is said to be linear when the amount of change in one variable to the
amount of change in another variable tends to bear a constant ratio.

For example, from the values of two variables given below, it is clear that the ratio
of change between the variables is the same:

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X: 10 20 30 40 50
Y: 20 40 60 80 100

b) Non-linear or Curvilinear-
The correlation is called as non-linear or curvilinear when the amount of change in
one variable does not bear a constant ratio to the amount of change in the other
variable.
For example, if the amount of fertilizers is doubled the yield of wheat would not be
necessarily be doubled.

Methods of Computing Co-Efficient of Correlation:

1. Scatter diagram method.

2. Pearson’s Product Moment Co-efficient of Correlation.
3. Spearman’s Rank Order Co-efficient of Correlation.
4. Concurrent Deviation Method.

1. Scatter diagram method.

Scatter diagram or dot diagram is a graphic device for drawing certain conclusions
about the correlation between two variables.
In preparing a scatter diagram, the observed pairs of observations are plotted by
dots on a graph paper in a two dimensional space by taking the measurements on
variable X along the horizontal axis and that on variable Y along the vertical axis.

2. Pearson’s Product Moment Co-efficient of Correlation.

Correlation measures the strength of association between two variables and the
direction of the relationship.

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In terms of the strength of relationship, the value of the correlation coefficient varies
between +1 and -1. A value of ± 1 indicates a perfect degree of association between
the two variables. As the correlation coefficient value goes towards 0, the relationship
between the two variables will be weaker.
The direction of the relationship is indicated by the sign of the coefficient; a + sign
indicates a positive relationship and a – sign indicates a negative relationship.

The coefficient of correlation is expressed by “r”.

Karl Pearson Correlation Coefficient Formula

Alternative Formula (covariance formula)

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3. Spearman Rank Correlation: Spearman rank correlation is a non-

parametric test that is used to measure the degree of association between
two variables.

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The Spearman rank correlation test does not carry any assumptions about
the distribution of the data and is the appropriate correlation analysis when
the variables are measured on a scale that is at least ordinal.
The following formula is used to calculate the Spearman rank correlation:

ρ= Spearman rank correlation

di= the difference between the ranks of corresponding variables
n= number of observations

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4. Concurrent Deviation Method:

This is simplest of all methods of evaluating Correlation.

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When it is considered to study the direction of change rather than its

quantity this method is suitable.

Probable Error:
Probable Error of Correlation Coefficient helps in determining the accuracy and
reliability of the value of the coefficient that in so far depends on the random
sampling.
In other words, the probable error (P.E.) is the value which is added or subtracted
from the coefficient of correlation (r) to get the upper limit and the lower limit
respectively, within which the value of the correlation expectedly lies.
The probable error of correlation coefficient can be obtained by applying the following
formula:

r = coefficient of correlation
N = number of observations
● There is no correlation between the variables if the value of ‘r’ is less than P.E.
This shows that the coefficient of correlation is not at all significant.
● The correlation is said to be certain when the value of ‘r’ is six times more than
the probable error; this shows that the value of ‘r’ is significant.

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● By adding and subtracting the value of P.E from the value of ‘r,’ we get the
upper limit and the lower limit, respectively within which the correlation of coefficient
is expected to lie. Symbolically, it can be expressed

The probable Error can be used only when the following three conditions are fulfilled:
1. The data must approximate to the bell-shaped curve, i.e. a normal frequency
curve.
2. The Probable error computed from the statistical measure must have been taken
from the sample.
3. The sample items must be selected in an unbiased manner and must be
independent of each other.

Example:
1. Calculate P.E if r = +0.92 and no. of pairs of items are 25.
Sol- We know,

= 0.6745 (1- (0.92)2) / (25) ½

= 0.021
Maximum limit = PE + r = + 0.021 + 0.92 = 0.941
Minimum limit = r -PE = 0.92 - 0.021 = 0.899

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