Department OF Business and Industrial Management

Presentation on correlation Guided by : MR.Hitesh Parmar Presented by: Nirav Patel Hemant Kherajani

Initially developed by Sir Francis Galton (1888) and Karl Pearson (1896)
Sir Francis Galton 1822-1911

 Definition Need of study correlation Positive & negative

correlation Linear Correlation Non-linear correlation Methods for study of correlation

 Correlation is the relationship that exists

between two or more variables. If variable are

related in such a way that change in one creates a corresponding change in the other, then the variable are said to be correlated -W.I.KING

Correlation

help in study economic theory and business studies, it help in establishing relationship between variable like price and quantity demanded, advertising and sales promotion measures Correlation analysis helps in deriving precisely the degree and direction of such relation. The effect of correlation is to reduce the range of uncertanity of our prediction. The prediction based on correlation analysis will be more reliable and near to reality. The measure of coefficient of correlation is relative measure of change.

Positive correlation:
If both the variables vary in same direction, correlation is said to be positive correlation .if one variable increase, the other also increases or, if one

variable decreases, the other variable is said to be a

positive correlation.

Negative correlation:
If both the variable vary in opposite direction, the

correlation is said to be negative. In other word if

one variable increases, but other variable decreases or, if one variable decreases but the other variables increases, than correlation between two variables is said to be negative correlation.

 Linear correlation:

If the amount of changes in one variable bears a

constant ratio to the amount of changes in the other

variable, then correlation is said to be linear. if such

variable plotted on graph paper all the plotted points would fall on straight line.

Non-linear correlation:
If change in one variable does not bear a constant ratio to the amount of changes in the other variable, then correlation is said to be non-linear. if such variable plotted on graph, the point will fall on a curve and not a straight line.

Methods of Studying Correlation

Scatter diagram

Karl Pearson's Co-efficient of correlation

Spearmen's Rank Correlation

Scatter diagram is diagrammatic representation of bi-variant data to ascertain the correlation between two variable.

Perfect positive correlation

Perfect negative correlation

Partial Positive Correlation

Partial Negative Correlation

Value of r (a) If r = +1 (b) If r =-1 (c) If r =0 (d) If +.75 r < +1

interpretation Perfect positive correlation Perfect negative correlation No correlation High positive correlation

(e)If -.75 r > -1

(f)If + 0.50 r < 0.75 (g)If -0.50 r > -0.75 (h)If r < +0.50 (i)If r> -0.50

High negative correlation

Moderate positive correlation Moderate negative correlation Low positive correlation Low negative correlation

Karl Pearsons
Correlation Coefficient Method

 The correlation co-efficient lies between -1

and +1. The correlation co-efficient is independent of change of origin and scale. The correlation co-efficient is an absolute number and it is independent of units of measurement. r2 always lies between 0 and 1.

Length in inches Weight in ozs

10

11

14

15

16

X
3

Y
9

_ X-x
-3

_ y-y
-4

_ (X-x)^2
9

_ (y-y)^2
16

_ _ (x-x)( y-y)
12

11

-2

-2

14

15

10

16

16

12

30

65

30

34

30

x = x/n = 30/5 _ x= 6

y = y/n = 65/5 _ y = 13

 r = (x-x)(y-y) / {(x-x2 )( y-y2 )}

r = 30 / 30 X 34 r = 30 / 5.447 X 5.831 r = 0.94

SPEARMAN'S RANK CORRELATION

Marks In Maths Marks In Economics

x
1 6 5 10 3 2 4

y
3 5 8 4 7 10 2

d=x-y
-2 1 -3 6 -4 -8 2

d2
4 1 9 36 16 64 4

95 55 63 40 72 88 65

63 55 47 60 48 42 69

49
54 50

70
51 45

9
7 8

1
6 9

8
1 -1

64
1 1

 r = 1- 6d2/ n(n2-1)
r = 1- 6(200) / 10(100-1) r = 1- 1200 / 990 r = 1-1.21 r = -0.21

 Ken Black
B.S. Shah

Statistics.com

THANK YOU !