Correlation

Analysis
 Learning Outcomes

•Understanding the meaning of Correlation

•Identify the direction and strength of a

correlation between Variables

• Understand the Types of Correlation

Meaning of Correlation
Analysis
• Correlation refers to a process for establishing
whether or not relationships exist between
two variables. 

• Correlation analysis show us how to determine

both the nature and strength of relationship
between two variables

• The correlation coefficient is usually given the

symbol r and it ranges from -1 to +1.
 Types of correlation

On the basis of On the basis of

On the basis of
degree of linearity
number of variables
correlation

•Positive •Simple
•Linear
correlation correlation correlation
•Partial correlation •Non – linear
•Negative
correlation correlation
•Multiple
correlation
Correlation : On the basis of
degree
 Positive Correlation
if one variable is increasing and with its
impact on average other variable is
also increasing that will be positive
correlation.
Example of Positive Correlation
• The More time you spend marketing your
business, the more new customers you will
have.
• As the temperature goes up, ice cream
sales also go up.
Correlation : On the basis of
degree
 Negative correlation
if one variable is increasing and with its
impact on average other variable is
decreasing that will be negative
correlation.
Example of Negative Correlation
• The weather gets colder, air conditioning
costs decrease.
• Increase in price of goods and services
decrease in sales
Scatter Plot for Positive and
Negative correlation
Correlation : On the basis of
number of variables
 Simple correlation
Correlation is said to be simple when
only two variables are analyzed.

For example :
Correlation is said to be simple when it
is done between demand and supply
or we can say income and expenditure
etc.
Correlation : On the basis of
number of variables
 Partial correlation :
When three or more variables are
considered for analysis but only two
influencing variables are studied and
rest influencing variables are kept
constant.
For example :
Correlation analysis is done with demand,
supply and income. Where income is
kept constant.
Correlation : On the basis of
number of variables
 Multiple correlation :
In case of multiple correlation three or
more variables are studied
simultaneously.
For example :
Rainfall, production of rice and price of
rice are studied simultaneously will be
known are multiple correlation.
Correlation : On the basis of
linearity
 Linear correlation :
If the change in amount of one variable
tends to make changes in amount of
other variable bearing constant
changing ratio it is said to be linear
correlation.
For example : The ratio of change
between the variables is the same
X: 10 20 30 40 50
Y: 20 40 60 80 100
 Correlation : On the basis of
linearity
 Non - Linear correlation :
If the change in amount of one variable
tends to make changes in amount of
other variable but not bearing constant
changing ratio it is said to be non - linear
correlation.
For example :
If the amount of fertilizers is doubled the
yield of wheat would not be necessarily be
doubled.
Importance of correlation
analysis :
 Measures the degree of relation i.e.
whether it is positive or negative.
 Estimating values of variables i.e. if
variables are highly correlated then we
can find value of variable with the
help of gives value of variable.
 Helps in understanding economic
behavior.
Thank
you