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3 September 2012
CORRELATION
If two quantities vary in such a way that movements of one are accompanied by movements of others then these quantities are said to be correlated. Ex: relationship between price of commodity and amount demanded, Increased in amount of the rainfall and the production of rice The degree of relationship between variables under consideration is measured through the correlation analysis. The measure of correlation is called the correlation coefficient or correlation index ( usually denoted by r or ) 3 September 2012 2 The correlation analysis refers to the techniques
DEFINITIONS
Correlation analysis deals with the association between two or more variables. Simpson and Kafka Correlation is an analysis of co variation between two or more variables. A.M.Tuttle If two or more quantities were in sympathy so that the movement of one tend to be accompanied by the corresponding movements in the other then they are said to be correlated 3 September 2012 3 L.R.Conner
ANALYSIS
The problem of analyzing the relation between different series should be broken down in to three steps 1. Determining whether a relation exists and if it does, measuring it. 2. Testing whether it is significant. 3. Establishing the cause and effect relation if any.
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The above data show a perfect positive relationship between income and weight i.e., as the income is increasing the weight is increasing and the rate of change between two variables is the same.
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2. Both the correlated variables may be influenced by one or more other variables. 3. Both the variables may be mututally influencing each other so that neither can be designated as the cause and the other the effect. Correlation observed between variables that cannot conceivably be casually related is called spurious or nonsense correlation
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TYPES OF CORRELATION
Positive or negative Linear and non linear correlation Simple , partial and multiple correlation
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Positive correlation
X Y 10 15 12 20 15 22 18 25 20 37
Y-Values
40 35 30 25 20
15
10 5
0
0
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10
15
20
25
10
Negative correlation
X Y 20 40 30 30 40 22 60 15 80 10
Y-Values
45 40 35 30 25 20 15 10 5 0 0
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20
40
60
80
100
11
LINEAR AND NONLINEAR(CURVILINEAR) CORRELATION correlation Distinction between linear and non linear
is based up on the constancy of the ratio of change between the variables. If the amount of change in one variable tends to bear constant ratio to the amount of change in the other variable then the correlation is said to be linear.
X Y 10 70 20 140 30 210 40 280 50 350
It is clear that the ratio of change between the two variables is the same. September 2012variables are plotted on the graph paper all 3 If such the plotted points would fall on a straight line.
13
100
50 0 0 10 20 30 40 50 60
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Correlation would be called non linear or curvilinear if the amount of change in one variable does not bear a constant ratio with the amount of change in the other variable.
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If all the points lie on a straight line falling from the lower left hand corner to the upper right hand corner the correlation is said to be perfectly positive(r=1)
8 7 6
5
4 3 2 1 0 0
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18
If all the points are lying on a straight line rising from the upper left hand corner to the lower right hand corner of the diagram correlation is said to be perfectly negative.
8
7 6 5 4 3 2 1
0
0 1 2 3 4 5 6 7 8
19
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If the plotted points fall in a narrow band there would be a high degree of correlation between the variables. If the points are widely scattered over the diagram it indicates very little relation ship between the 10 variables. 10
8 6 4 2 0 0 5 10
HIGH DEGREE OF POSITIVE CORRELATION
8
6 4 2 0 0 5 10
LOW DEGREE OF POSITIVE CORRELATION
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If the plotted points lie in a haphazard manner it shows the absence of any relationship between the variables
8
7 6 5 4 3 2 1 0 0 2 4 6 8 10 12 14
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EXAMPLE:
X Y 14 12 10 8 6 4 2 0 0
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2 6
3 5
5 7
6 8
8 12
10
22
By looking at the scattered diagram we can say that the variables x and y are correlated. Further the correlation is positive because the trend of the points is upward rising from the lower left hand corner to the upper right hand corner of the diagram. It also indicates that the degree of relationship is higher because the plotted points are near to the line which shows perfect relationship between the variables.
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GRAPHIC METHOD
When this method is used the individual values of the two variables are plotted on the graph paper. We thus obtain 2 curves. One for x variable and another for y variable. By examining the direction and closeness of the two curves so drawn we can infer if the variables are related or not. If both the curves drawn on the graph are moving in the same direction (either upward or downward)then the correlation is said to be positive. On the other hand if the curves are moving in the opposite direction correlation is said to be negative.
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Year
1979 1980 1981 1982
Average income
100 102 105 105
Average expenditure
90 91 93 95
1983
1984
101
112
92
94
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120
INCOME
100 80 60 40 20 0
EXPENDITURE
Series 1 Series 2
1979
1980
1981
1982
1983
1984
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CORRELATION COEFFICIENT
If [X,Y] is a two dimensional random variable, the correlation coefficient, denoted r, is
X Y
= XY
X Y
= xy (x2 * y2)
, where
= xy N
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EXAMPLE
Calculate the Karl Pearsons Correlation Coefficient from the following data and interpret its value Roll no of students: 1 2 3 4 5 Marks in Accountancy : 48 35 17 23 47 Marks in Statistics: 45 20 40 25 45 SOLUTION: Let marks in Accountancy be denoted by X and Statistics by Y
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Roll no
1
(X34) x
14
x2
(Y-35) y
10
y2
xy
48
196
45
100
140
2
3 4 5
35
17 23 47
1
-17 -11 13 x=0
1
289 121 169
20
40 25 45
-15
5 -10 10
225
25 100 100 y2=55 0
-15
-85 110 130 xy=28 0
32
X=170
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= xy (x2 *y2)
where x=(X-X); y=(Y-Y) , X'= X N; Y=Y N xy=280 x2=776 y2=550
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DEGREE OF CORRELATION
The value of always lies between -1 and 1. If lies between 0 and 1, it is positive. Else, if it lies between -1 and 0, it is negative
If =1, then the two variables are said to be perfect positively correlated
If =-1, then the two variables are said to be perfect negatively correlated If =0, then the two variables are not correlated
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