Chartered Accountancy Session 2, Section D

CPT Course Quantitative Aptitude

Lecture 29 – Correlation Quick Revision Notes

1 2
Correlation Karl Pearson’s Product Correlation
It is denoted by the symbol ‘r’ and calculated by the formula -
When two variables are so related that a change in one is
accompanied by a change in the other, the variables are said to
be correlated. Cov ar iance( x, y )
r=
Positive Correlation : When an increase in the variable leads S .D.x S .D.y
to an increase in the other and vice-versa.
Covariance (x,y) =
∑ ( X − X )(Y − Y )
Negitive Correlation : When an increase in the variable leads n
to a decrease in the other and vice-versa. OR
n∑ xy − ∑ x∑ y
Methods to Determine Correlation :- r=
1. Scatter Diagram n∑ x 2 − (∑ x)2 n∑ y 2 − (∑ y )2
2. Karl Pearson’s Product Correlation
3. Spearman’s Rank Correlation
Imp. Result : The value of r always varies from -1 to Spearman’s Rank Correlation
+1 Its formula is:

6∑ d 2
rR = 1 −
n(n 2 − 1)
Where d = difference of corresponding ranks
n = total no. of observations