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Understanding Correlation Analysis Basics

Correlation analysis measures the strength of the relationship between two or more variables. It can test relationships between quantitative and categorical variables. There are different types of correlation based on the number of variables and whether the relationship is linear or nonlinear. Pearson's correlation coefficient is commonly used to measure the linear relationship between two variables on a scale of -1 to 1, where -1 is a perfect negative correlation, 1 is a perfect positive correlation, and 0 is no correlation.

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41 views13 pages

Understanding Correlation Analysis Basics

Correlation analysis measures the strength of the relationship between two or more variables. It can test relationships between quantitative and categorical variables. There are different types of correlation based on the number of variables and whether the relationship is linear or nonlinear. Pearson's correlation coefficient is commonly used to measure the linear relationship between two variables on a scale of -1 to 1, where -1 is a perfect negative correlation, 1 is a perfect positive correlation, and 0 is no correlation.

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Lady Jane Cagulada
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd

Correlation Analysis

Definition

Correlation is the degree of association between two or


more variables.

Correlation is used to test relationships between


quantitative variables or categorical variables. In other words, it’s
a measure of how things are related. The study of how variables
are correlated is called correlation analysis.
• Relationship between income and years of
experience
• Relationship between amount of rainfall and
yield of rice
• Relationship between price and demand of a
Examples commodity
• Relationship between nature of work and
motivation to work
• Relationship between height and weight
• POSITIVE CORRELATION
- the value of one variable increases, the value of other
value increases at the same rate.
For example:
X : 350 360 370 380

Correlation: Y : 30 40 50 60

On the basis • NEGATIVE CORRELATION


of degree The two variables move in the opposite
direction.
-

For example:
X : 350 360 370 380
Y : 80 70 60 50
1. Simple correlation
- two variables are analyzed
For example: Relationship between demand and supply.

Correlation: 2. Partial Correlation


On the basis of - when 3 or more variables are considered but only
2 influencing variables are studied and rest influencing
number of variables are kept constant.
For example: Analysis on demand , supply, and income
variables where income is kept constant.
3. Multiple Correlation
- 3 or more variables are studied simultaneously.
For example: Rainfall, production of rice, and price of rice
1. Linear correlation:
- the amount of change of variables are in
constant ratio.
For example:
X : 350 360 370 380
Correlation: Y : 30 40 50 60
On the basis 2. Non-Linear correlation:
of linearity - the change in amount of variables
without bearing a constant changing ratio.
For example:
X : 320 360 410 490
Y : 21 33 49 56
• Correlation Analysis attempts to measure the strength of the
relationship between two random variables by means of a single
number called a correlation coefficient.

• A correlation coefficient is a way to put a value to the relationship.

• One commonly used method of measuring linear relationship


between two variables is Pearson Product Moment Correlation
Coefficient. It is denoted by r.
• Assumptions of Karl Pearson’s
Coefficient:

1. There is linear relationship


between variables.

2. There is cause and effect


relationship.
Interpretations:

1. the value of r, ranges from -1 to +1 or r=-1, there is a


perfect linear relationship and all points lie in a straight
line.

2. An r close to +1 indicates a high positive linear


relationship between the two variables X and Y, that is, if
the value of X increases then the value of Y also
increases.
3. An r close to -1 indicates a high negative linear
relationship between the sample values, that is, the
value of x decrease as the value of Y increases.

4. An r near to 0 means that there is a lack


linearity between the two variables, or there is
no linear relationship between them.

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