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Naresh K. Malhotra
Marketing Research-an applied orientation, 4th ed.
Product moment correlation
Product moment correlation is a statistic is used to summarize the strength of
association between two metric (interval or ratio) variables say X and Y. It is also known
as Pearson Correlation Co-efficient, Simple Correlation, Bivariate Correlation or simply
Correlation Co-efficient. It is proposed by Karl Pearson.
Ex: How strongly are sales related to advertising expenditures?
X X Y i Y
n
i
r i 1
X X Y Y
Formula: n
2
n
2
i i
i 1 i 1
The value of r varies between -1 and +1. The value of r is equal-
1. 0 means there is no linear relationship between X and
Y
2. 1 means there is a positive strong relationship
between X and Y
3. -1 means there is a negative strong relationship
between X and Y
Regression Analysis
Regression analysis is a powerful and flexible procedure for analyzing associative relationships between
a metric dependent variable and one or more independent variables. It is concerned with the nature
and degree of association between variables and does not imply or assume any causality. It is used in
the following ways:
1. Determine whether the independent variables explain a
significant variation in the dependent variable: Whether a
relationship exists
2. Determine how much of the variation in the dependent
variable can be explained by the independent variables:
Strength of the relationship
3. Determine the structure or form of the relationship: The
mathematical equation relating the independent and
dependent variables
4. Predict the values of the dependent variable
5. Construct for other independent variables where evaluating
the contributions of a specific variable or set of variables.
Bivariate Regression
Bivariate regression is a procedure for deriving a mathematical relationship
in the form of an equation between a single metric dependent or criterion
variable and a single metric independent or predictor variable.
Ex: Can the variation in market share be accounted for by the size of the
sales force?
Equation:
Y β 0 β1 X
Bivariate Regression’s process
It is a nine-step process-
Plot the Scatter Diagram
Where,
Y dependent or criterion variable
X Independent or predictor variable
β 0 Intercept of the line
β 1 Slope of the line
Step III In the most cases, β 0 and β1 are unknown and are estimated from the sample
observations using the equation: Ŷ a bx ; where Y is the estimated or
i i i
predicted value of Ŷ . The value of a and b will be found by the following
i
formula:
n n
X X Y Y X Y nXY
i i i i
Number One: b i 1
n
i 1
n
i
X X 2
2
Xi nX 2
i 1 i 1
Number Two: a Y - bX
Step IV
Bivariate Regression’s process
Standardization is the process by which the raw data are transformed into new
variables that have a mean of 0 and a variance of 1. When the data are
standardized, the intercept assumes a value of 0. The term beta coefficient or beta
weight is used to denote the standardized regression coefficient is
B yx B xy rxy
Step V The statistical significance of the linear relationship between X and Y may be
tested by examining the hypotheses:
H0 : β1 0
H1 : β1 0
The null hypothesis implies that there is no linear relationship between X and Y.
The alternative hypothesis is that there is a relationship-positive or negative
between X and Y. Typically, a two-tailed test is done. A t statistic with n – 2
degrees of freedom can be used where-
b
t
SE
b
Bivariate Regression’s process
Step V SE bdenotes the standard deviation of b and is called the standard
error. When the calculated value of t is larger than the critical value,
then the null hypothesis is rejected means that there is a significant
linear relationship between dependent & independent variable.
Ŷ Y
n
SS reg
2
i
i 1
n
SS res i i
2
Y Ŷ
i 1
2
H1 : R 0
Step Latter
VIII
Step IX Latter
Multiple Regression
Multiple regression involves a single dependent variable and two or more
independent variables. Ex: Can variation in sales be explained in terms of
variation in advertising expenditures, prices and level of distribution? The
general form of the multiple regression model:
Y β0 β X β X β X β X e
1 1 2 2 3 3 k k
SS y