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Correlation

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17 views

Correlation

Uploaded by

vasikar22
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© © All Rights Reserved
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Download as PDF, TXT or read online on Scribd
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Correlation

Correlation is a statistical measure between the two variables


referred to as correlation. It calculates the linear relationship
between two variables. The degree to which two variables are linearly
connected, or change together at a constant pace, is expressed
statistically by correlation. It's a popular method for summarizing
straightforward relationships without establishing cause and effect.
In other words, Correlation refers to a statistical measure that
indicates the extent to which two or more variables fluctuate together.
In other words, it measures the strength and direction of a
relationship between two variables.
A scatter plot is a graph which shows the values of two variables X
and Y, along with the way in which these two variables relate to each
other. The values of variable X are given along the horizontal axis,
with the values of the variable Y given on the vertical axis.

Correlation is used in a wide range.

Examples
Finance:Correlation is used to understand the relationship between
different investment assets to build diversified portfolios.
Economics: Correlation is applied to identify the relationship between
different economic indicators, such as unemployment rates and GDP
growth
Biology: Correlation is used to study the relationship between certain
genetic traits and the likelihood of developing certain diseases.
In essence, correlation provides valuable insights into the
relationships between variables, allowing for better decision-making
and understanding of complex systems.
Correlation is one of the most important concepts in statistics because
it helps us to understand the strength and the direction of the
relationship between the variables. Correlation is used in many
different statistical analyses, including predictive modeling,
exploratory data analysis and regression analysis, and to determine
the predictive strength of variables.
Types of Correlation

Positive correlation
Positive correlation occurs when the values of two variables move in
the same direction, meaning that an increase or decrease in one
variable is followed by a corresponding increase or decrease in the
other variable.
Negative correlation
When the values of two variables move in opposite directions, it is
known as negative correlation. This means that an increase in one
variable is followed by a decrease in the other variable, and vice versa.
No Correlation
when there is no linear dependence or no relation between the two
variables.

Correlation Coefficient

We describe correlations with a unit-free measure called the


Correlation Coefficient which ranges from -1 to +1 and is denoted by r.
Statistical importance is denoted with a p-value. Therefore,
correlations are typically written with two key numbers: r = and p =

The closer r is to zero, the weaker the linear relationship.

Positive r values indicate a positive correlation, where the values of


both variables tend to increase together.

Negative r values indicate a negative correlation, where the values of


one variable tend to increase when the values of the other variable
decrease.

● If r < 0, it implies negative correlation


● If r > 0, it implies positive correlation
● If r = 0, it implies no correlation
Correlation Correlation Correlation
Coefficient Strength Type
(r value)

-.5 to -.7 strong negative

-.3 to -.5 moderate negative

0 to -.3 weak negative

0 none none

0 to .3 weak positive

.3 to .5 moderate positive

.5 to .7 strong positive
Pearson Correlation Coefficient Formula

The most common formula is the Pearson Correlation coefficient used


for linear dependency between the data sets. The value of the
coefficient lies between -1 to +1. When the coefficient comes down to
zero, then the data is considered as not related. While, if we get the
value of +1, then the data are positively correlated, and -1 has a
negative correlation.

𝑛∑𝑥𝑦 − (∑𝑥)(∑𝑦)
r=
[𝑛∑𝑥2−(∑𝑥)2]*[𝑛∑𝑦2−(∑𝑦)2]
Where n = Quantity

Σx = Total of the First Variable Value


Σy = Total of the Second Variable Value
Σxy = Sum of the Product of first & Second Value
Σx2 = Sum of the Squares of the First Value
Σy2 = Sum of the Squares of the Second Value

x y 𝑋2 𝑌2 XY

3.63 53.1 13.1769 2189.61 192.8

3.02 49.7 9.1204 2470.09 150.1

3.82 48.4 14.5924 2342.56 184.9

3.42 54.2 11.6964 2937.64 185.4

3.59 54.9 12.8881 3014.01 197.1

2.87 43.7 8.2369 1909.69 125.4

3.03 47.2 9.1809 2227.84 143.0

3.46 45.2 11.9716 2043.04 156.4

3.36 54.4 11.2896 2959.36 182.8

3.3 50.4 10.89 2540.16 166.3

∑x=33.5 ∑y=501.2 ∑𝑥2 = 113.05 ∑ 𝑦2 = 25264 ∑ 𝑥𝑦 =1684.2


n = 10
Σx = 33.5
Σy = 501.2
Σxy = 1684.2
Σx2 = 113.05
Σy2 = 25264
Substitute Values in Formula.

r = 0.47 (moderate positive correlation)

𝑛∑𝑥𝑦 − (∑𝑥)(∑𝑦)
r=
[𝑛∑𝑥2−(∑𝑥)2]−[𝑛∑𝑦2−(∑𝑦)2]

To calculate the Pearson correlation coefficient, data of two variables


of interest must be gathered.This tool can be used to determine if the
relationship between the two variables is positive or negative, as well
as to measure its strength.

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