Example:- Price varies with demand

Submitted by, GEETANJALI TIWARI IIPM/ISBE-A/PGP/FW10-12 IIPM-Dehradun

The value of r varies b/w -1 to 1

Various types of Correlation:

1- Perfect Correlation 2- Perfect Positive Correlation when r=1

3- Perfect Negative Correlation when r=-1

DIFFERENT METHOD UNDER THIS ARE:

After getting the value of r, we go for TEST OF SIGNIFICANCE using t-test of statistics range i.e. -1 to +1

We compare t with the table value Ho : r=0 (the two variables are not associated) H1 : r0 (the two variables are associated) If the value of the t stastistics is more than the table t valve, then reject the null hypothesis otherwise accept the null hypothesis.

The annual advertising expenditures (in lakhs of Rs.) & the corresponding annual sales (in crores of Rs.) for the past 10 years of a company are presented in the table. Find correlation coefficient between annual advertising expenditure and annual sales revenue using the basic formula as well as Pearsons product moment formula. Also test the significance of the correlation coefficient at significant level of 0.05

Year 1 2 3 4 5 6 7 8 9

Advert. Expend. (xi) (in lakhs) 10 12 14 16 18 20 22 24 26

Annual sales (yi) (in crores) 20 30 37 50 56 78 89 100 120

10

28 xi = 190
x^ = 190/10 = 19

110 yi = 690
y^ = 690/10 = 69

xi

yi

xi-x^

yi-y^

(xi-x^)

(yi-y^)

(xi-x^) (yi-y^)

xi yi

xi

yi

1 2 3 4 5

10 12 14 16 18

20 30 37 50 56

-9 -7 -5 -3 -1

-49 -39 -32 -19 -13

81 49 25 9 1

2401 1521 1024 361 169

441 273 160 57 13

200 360 578 800 1008

100 144 196 256 324

400 900 1369 2500 3136

6
7 8 9

20
22 24 26

78
89 100 120

1
3 5 7

9
20 31 51

1
9 25 49

81
400 961 2601

9
60 155 357

1560
1958 2400 3120

400
484 576 676

6084
7421
10000 14400

10

28
190

110
690

9
0

41
0

81
330

1681
11200

369
1894

3080
15004

784
3940

12100
58810

= 1894/(330 1120) = 0985

= (10*15004 190*690)/(10*3940(190) 10*58810-(690)) = 0985

Regression is the dependence of a variable on one or more variables. A linear regression equation is-

y = a + bx
where, y is the dependent variable x is the only independent variable a = intercept b = slope/ trend

The slope of equation means the increase in y- axis per unit increase in x- axis. If the number of independent variables on the R.H.S. of the linear equation is more than 1, then the corresponding equation is called Multiple Linear Regression Equation.

A company has a sales pattern (in units) 1994 to 2002 as though in the table. (a)fit a linear regression for the date (b)compute the sales for the year 2006
Year (X)
1994 1995 1996 1997 1998 1999 2000 2001 2002

Sales (in lakhs) Yo

10 12 15 27 33 38 44 49 60

Steps for calculating the table value : Calculating the total sales (in lakhs). we denoted x for the values of years. Assuming 1998 as mid year. Making a 3rd column and subtracting 1998 (mid year assumed as 1998 is at 5th place) from year row-wise placing the value simultaneously in 3rd column. Equation will be like X = x 1998 x is the year we are scrolling column-wise X is assigned as the notation for third column. This means we get a new X Calculating XY in fourth column. Calculating and placing the value of X in fifth column. In sixth column calculating the value of MODEL OF REGRESSION i.e. Ye = a + bX

Year x
1994 1995 1996 1997 1998 1999 2000 2001

Sales (in lakhs) Y

10 12 15 27 33 38 44 49

X=x1998
-4 -3 -2 -1 0 1 2 3

XY
-40 -36 -30 -27 0 38 88 147

X
16 9 4 1 0 1 4 9

Ye = a + bX
6.68 13.01 19.34 25.67 32 38.33 44.66 50.99

2002

60
Y=288

4
X=0

240
XY=380

16
X=60

57.32
Ye=288

Ye(2006) = a + bX = 32 + 633 * 8 = 8264 (in lakhs) or = 82,64,000

X = x 1998 = 2006 1998 =8

Testing the Hypothesis on the Significance of REGRESSION

After fitting a regression order for a real world data one should check whether the estimates from the regression model represent the real world data. Let Yi be the ith observation of the dependent variable Y. Xi the ith observation of the independent variable X. the mean of the independent variable Y. i = the estimated value of the ith dependent variable Y n = the total no. of pairs of observations of the independent variable and dependent variable a = the intercept b = the slope ei = random error associated with the ith pair of Yi and i Model of Regression Yi = a + bXi + ei