CORRELATION and REGRESSION

Correlation

The term correlation is a combination of two words ‘Co’ (together) and relation
(connection) 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

Regression

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:

1. 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.
2. 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.
3. 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.
4. 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.
5. 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.
 BASIS FOR
CORRELATION REGRESSION
COMPARISON

Meaning Correlation is a statistical Regression describes how

measure which determines an independent variable is
co-relationship or association numerically related to the
of two variables. dependent variable.

Usage To represent linear To fit a best line and

relationship between two estimate one variable on the
variables. basis of another variable.

Dependent and No difference Both variables are different.

Independent
variables

Indicates Correlation coefficient Regression indicates the

indicates the extent to which impact of a unit change in
two variables move together. the known variable (x) on
the estimated variable (y).

Objective To find a numerical value To estimate values of

expressing the relationship random variable on the basis
between variables. of the values of fixed
variable.

With this it is evident, that there is a big difference between these two
mathematical concepts, although these two are studied together. Correlation is
used when the researcher wants to know that whether the variables under
study are correlated or not, if yes then what is the strength of their
association. Pearson’s correlation coefficient is regarded as the best measure
of correlation. In regression analysis, a functional relationship between two
variables is established so as to make future projections on events.