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R.Venkatesakumar
Department of Management Studies
School of Management, Pondicherry University
Puducherry, INDIA
Correlation Coefficient
4 2
6 2
6 4
7 4
8 5
7 5
8 6
10 6
4
The Correlation coefficient for two variables,
rxy
X and Y is denoted by r
a. r ranges from +1 to -1
b. r = +1 a perfect positive linear relationship
c. r = -1 a perfect negative linear relationship
d. r = 0 indicates no correlation
.
Simple Correlation Coefficient
rxy ryx
X X Y Y
i i
Xi X Yi Y
2 2
xy
rxy ryx x2
2
x
2
y
y2
xy
Correlation
X
.
Correlation Patterns
Y
X
.
Correlation
Does Not Mean Causation
High correlation
Roosters crow and the rising of the sun
Rooster does not cause the sun to rise.
Teachers salaries and the consumption of
liquor
Co-vary because they are both influenced by a
third variable
An Illustration of Multiple Regression
Number of Credit Cards (Y) Family Size (V1) Family Income (V2) Number of cars (V3)
4 2 14 1
6 2 16 2
6 4 14 2
7 4 17 1
8 5 18 3
7 5 21 2
8 6 17 1
10 6 25 2
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Mean representation
If Mean alone used
as representative Number of Credit Cards
(Y) Y- (Y-)**
for the data then 4 -3 9
= Total / Number of
observations 6 -1 1
= 56 /8 = 7 6 -1 1
mean representation 8 1 1
of the data is 22 7 0 0
8 1 1
13
Correlation among variables
Number of Credit
Cards
(Y) 1.0000
Family Size
(V1) 0.8664 1.0000
Family Income
(V2) 0.8290 0.6727 1.0000
Number of cars
(V3) 0.3419 0.1917 0.3008 1.0000
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Mathematics of regression
16.514 / 22
0.7506
0.8664 * 0.8664
Correlation square
Coefficient of determination) R**
0.7506
16
Excel / SPSS output
Regression Statistics
Multiple R 0.866400225
ANOVA
R Square 0.750649351
df SS MS F Significance F
Total 7 22
Observations 8
17
Reducing the error further
18
Prediction using
Y = 0.482 + 0.63 V1 + 0.216 V2
0 3.050136
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Total Error (due to mean representation) 22
0.8614
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The logic
The logics are slightly different
Instead of correlation we have to
consider Partial Correlation
It is the measure of variation in
dependent variable (in the equation),
not accounted by the variable (s) in the
equation that can be accounted for by
each of these additional variables..
21
Consider the correlation & Partial correlation
Correlations
22
The logic
The incremental
Error reduction = (Remaining variance X
variance accounted Partial correlation squared)
= {0.2494 X (0.666 X 0.666)}
0.11062
by entering V2
23
Thank you
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