DEPARTMENT OF TECHNICAL EDUCATION

ANDHRA PRADESH
Name : B.VIJAYA KUMAR
Designation : Lecturer
Branch : Commercial & Computer
Practice (CCP)
Institute : GPW/ Guntur
Year/Sem : II Yr Sem 4
Subject : QUANTITATIVE TECHNIQUES-II
Sub-Code : CCP-403
Topic : CORRELATION ANALYSIS
Duration : 50 minutes
Sub Topic : advantages and
disadvantages of correlation
Teaching Aids : PPT, ANIMATION
CCP403.2 1
Objectives

On completion of this period, you would be

able to :
 List the advantages and disadvantages of
CORRELATION

CCP403.2 2
 Recap
 Correlation is a statistical technique to measure
degree of change in two or more variables.

 Correlation is only a concept. But Co-efficient of

Correlation measures the concept of Correlation.

CCP403.2 3
Recap

Correlation Analysis HELPS:

b) to measure the value of ONE variable with the
GIVEN VALUE of another.
c) to remove UNCERTAINTY.
d) for progressive development of Science &
Philosophy.
e) for good and timely business decisions.
f) to understand ECONOMIC BEHAVIOUR.

CCP403.2 4
Correlation - Advantages

1. Degree of relationship between TWO (or

more) variables MEASURED.

Eg: Advertisement expenditure and Sales Revenue

of a Company.

CCP403.2 5
Correlation - Advantages

2. FUTURE PREDICTION

Eg: Sales Projections for future

Good monsoons and better food supply

CCP403.2 6
Correlation - Advantages

1. STUDY OF ECONOMIC CONCEPTS

Eg: Law of Demand

Elasticity of Demand etc

CCP403.2 7
Correlation - Advantages

4. WHEN TWO VARIABLES ARE CLOSELY

RELATED, ESTIMATING ONE VARIABLE VALUE
WHEN ANOTHER VARIABLE VALUE IS
GIVEN

Eg: Calculating value of X, using the given value of Y.

Note: This is explained in next chapter “Regression

Analysis”

CCP403.2 8
Correlation - Advantages

5. CONTRIBUTES TO ECONOMIC
BEHAVIOUR

Eg: Study of critically important economic variables.

CCP403.2 9
Correlation - Advantages
6. Bases for:

(a) Ratio of Variation

(b) Regression Analysis

CCP403.2 10
Correlation - Advantages

7. USEFUL TECHNIQUE IN COMMERCE

AND INDUSTRY

Eg: Estimation of Sales, Price, Costs etc.

CCP403.2 11
Correlation - Advantages

8. PRECISE AND RELIABLE

PREDICTIONS

 Predictions are very accurate

 Reliable (because of nearness to reality)

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Correlation - Disadvantages

1. NO CAUSE & EFFECT

RELATIONSHIP

 Establishes only COVARIATION

Eg: High Smoking – cause for LUNG CANCER

CCP403.2 13
Correlation - Disadvantages

2. HIGH DEGREE OF CORRELATION IS A

PURE CHANCE

Eg: Shoe Size and Intelligence of people

CCP403.2 14
Correlation - Disadvantages

3. INFLUENCE OF EXTERNAL
VARIABLES

 Correlation Variables influenced by External

Variables
Eg: Influence of “Purchasing Power” on prices of
X and Y being correlated

CCP403.2 15
Correlation - Disadvantages

4. MUTUAL DEPENDANCE OF
VARIABLES

 High degree of correlation due to MUTUAL

INFLUENCE of variables
Eg: Rise in DEMAND of a product due to FALL
in price

CCP403.2 16
Summary

Correlation – its MERITS:

 It measures the degree of relation between

TWO or more variables

 It predicts future targets of Sales/Profits etc

CCP403.2 17
 Contd…

Summary
 It studies economic concepts such as Law of
Demand, Elasticity of Demand etc

 It estimates one variable value with given value of

another (dealt in “Regression Analysis”)

 It studies critically important economic variables

CCP403.2 18
 Contd…
Summary

 Its predictions are precise and reliable

 It is very useful to trade, commerce & industry
 It is the bases for Ratio of Variation and
Regression Analysis
 It contributes to Economic Behaviour

CCP403.2 19
 Contd…
Summary

Correlation - demerits:

 No cause & effect relationship.

 It is sometimes PURE chance.
 Variables suffer from External Influence.
 Variables are MUTUALLY dependent.

CCP403.2 20
Quiz

1) Correlation is useful for:

c) Prediction of future Sales/Costs/Profits

d) Measuring the degree of relationship
between two variables
e) Calculation of Regression Analysis
f) All the above

CCP403.2 21
Assignment:

1. Explain the merits and demerits of correlation

in detail?

CCP403.2 22
Frequently Asked Questions:

1. Write any TWO merits and demerits each of

Correlation.
2. List out any FOUR advantages of Correlation.
3. Mention any FOUR disadvantages of Correlation.

CCP403.2 23