GROUP MEMBERS

DILDAR ALI
CORRELATION
COURSE INSTRUCTOR
MR. SHAHBAZ ALI
SEQUENCE:
 Introduction
 Definition
 Types
 Methods
 Derivation ofPearson Product Moment
Correlation Coefficient
 Example 10.5
 Properties
 Example 10.6
 DEFINITION
 Correlation isa measure of the degree to which any two
variables vary together.
 In other words, Two variables are said to be correlated if
they tend to simultaneously vary in some direction.
 Correlation analysisdeals with the association between
two or more variables.
 Types of Correlation

On the basis of degree of On the basis of number of

On the basis of linearity
Correlation variables

1. Simple Correlation
1. Positive Correlation 1. Linear Correlation
2. Partial Correlation
2. Negative Correlation 2. Non-Linear Correlation
3. Multiple Correlation
On the basis of degree of Correlation

 Whether the correlation is positive or

negative depends upon the degree studied.
1. Direct or Positive Correlation:
 If both the variables tend to increase
( or decrease) together, the correlation is
said to be Direct or Positive Correlation.
Example:
 The length of an Iron bar will increase as
the temperature increases.
2. Inverse or Negative Correlation:
 Ifone variable tends to increase as the
other variable decreases , the correlation is
said to be Inverse or Negative Correlation.
Example:
 The volume of gas will decrease as the
pressure increases.
On the basis of number of variables

 Whether the correlation is simple, partial or

multiple depends upon the number of
variables studied.
1. Simple Correlation:

 The correlation is said to be simple when

only two variables are studied.
2. Partial Correlation:

 The correlation is said to be Partial when we

have more than two variables, but consider
only two variables to be influencing each
other, the effect of other influencing variables
being kept constant.
Example:
The Relationship between yield and rainfall at
a constant temperature is a partial correlation.
3.Multiple Correlation:
 The Correlation is said to be multiple when at
least three variables are studied
simultaneously.
Example:
when we study the relationship between the
yield of rice per acre and both the amount of
rainfall and the amount of fertilizers used, it is
a problem of multiple correlation.
On the basis of Linearity

 Whether the correlation between the variables

is Linear or Non-Linear depends on the
constancy of ratio of change between the
variables.
1.Linear Correlation:
 Itis the situation in which any change in
one variable leads to change in other
variable in same ratio.
Example:
Consider the variables with the following values.
X: 10 20 30 40 50
Y: 20 40 60 80 100
 Here, there is a linear relationship between the
variables. There is a ratio 1:2 at all points. Also, if
we plot them they will be in a straight line.
2.Non-Linear Correlation:
 Itis a situation in which any change in one variable
leads to change in other variable in different ratio.
Example:
Consider the variables with the following values
X: 10 20 30 40 50
Y: 10 30 70 90 120
Here there is a non linear relationship between the variables. The ratio
between them is not fixed for all points. Also if we plot them on the
graph, the points will not be in a straight line. It will be a curve.
Method To Measure Correlation
METHOD

Graphical Method Mathematical Model

Pearson Product
Moment Correlation
Co-efficient
Spearman’s Rank
Correlation
Scatter Diagram/Two
way frequency table

Co-efficient of
concurrent deviation
Pearson Product Moment
Correlation Coefficient:
 The numerical measure of strength in the linear
relationship between any two variables is called
the Pearson’s Product moment correlation
coefficient or the coefficient of simple correlation
or total correlation or total correlation.
 The Sample linear Correlation coefficient for n
pairs of observations (Xi , Yi) usually denoted by
the letter r, is defined by
ഥ
Σ(𝑋−𝑋)(𝑌− ഥ)
𝑌
𝑟=
ഥ 2 Σ(𝑌−𝑌
Σ(𝑋−𝑋) ഥ )2
 The Coefficient of Correlation r is a pure number (i.e. independent of the units in which
the variables are measured) and it assumed values that can range from +1 for perfect
positive linear relationship, to -1, for perfect negative linear relationship with the
intermediate value of zero indicating non-linear relationship between X and Y. The sign
of r indicates the direction of the relationship or correlation.
 It is important to note that r=0 does not mean that there is no relationship at all. For
Example, if all the observed values lie exactly on a circle, there is a perfect non-linear
relationship between the variables but r will have a value of zero as r only measures the
linear correlation.
DERIVATION:
EXAMPLE 10.5:

Calculate the product moment co-efficient of

correlation between X and Y from the following data

X 1 2 3 4 5

Y 2 5 3 8 7
Alternatively, the following table is set up
for calculation of r.
Properties Of Correlation:

1. The Correlation Coefficient r is symmetrical with respect to the variables X

and Y, i.e. 𝑟𝑋𝑌 = 𝑟𝑌𝑋 .
2. The Correlation coefficient lies between -1 and +1, i.e. -1≤ 𝑟 ≤ +1.
3. The Correlation Coefficient is independent of the origin and scale.
NOTE:
By origin, it means subtracting any non-zero constant from the given value of X and
Y the vale of “r” remains unchanged. By scale it means, there is no effect on the value
of “r” if the value of X and Y is divided or multiplied by any constant.
PROOF:
4. The coefficient of correlation is a
geometric mean of two regression
coefficient. Symbolically it is
represented as:
r= 𝑏𝑦𝑥 . 𝑏𝑥𝑦
Either 𝑏𝑦𝑥 and 𝑏𝑥𝑦 are both positive or both are negative .
Therefore
r=+ 𝑏𝑦𝑥 . 𝑏𝑥𝑦 , 𝑏𝑦𝑥 and 𝑏𝑥𝑦 are both positive.
r=− 𝑏𝑦𝑥 . 𝑏𝑥𝑦 , 𝑏𝑦𝑥 and 𝑏𝑥𝑦 are both negative.
EXAMPLE 10.6
SOLUTION
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