Correlation

Introduction:
The correlation coefficient is a statistical measure of the strength of a linear relationship

between two variables. Its values can range from -1 to 1. A correlation coefficient of -1
describes a perfect negative, or inverse, correlation, with values in one series rising as those
in the other decline, and vice versa. A coefficient of 1 shows a perfect positive correlation, or
a direct relationship. A correlation coefficient of 0 means there is no linear relationship.
Correlation coefficients are used in science and finance to assess the degree of association
between two variables, factors, or data sets. For example, as high oil prices are favorable for
crude producers, one might assume that the correlation between oil prices and forward returns
on oil stocks is strongly positive. Calculating the correlation coefficient for these variables
based on market data reveals a moderate and inconsistent correlation over lengthy periods.
Definition: Correlation refers to the relationship between two or more variables. Simple
correlation studies the relationship between two variables Correlation analysis attempts to
determine the degree of relationship between variables:
If the change in one variable is accompanied by the corresponding change in the other
variable, then we say thit there is correlation between the given two variables. In other words,
these two variables are said to be correlated variables.
Types of Correlation
(a) Positive Correlation:-
If the increase change in one variable is accompanied by the corresponding increase change
in other variable, or if the decrease change is one variable is accompanied by the
corresponding decrease change in other variable, then we say that these is Positive
Correlation between the two variables. In this case, the two variables more in the same
direction.
Example: Correlation between (1) sales and expenditure on advertisement; (ii) Income and
Expenditure of Households, (iii) Production and Labour (iv) Heights and weights of students
etc., are the cases of positive correlation.
(b) Negative Correlation: If the increase change in one variable is accompanied by the
corresponding decreasing change in other variable; or if the decrease change in one variable
is accompanied by the corresponding increase change in other variable, then we say that there
is Negative Correlation In this case the two variables more in the opposite direction.
Examples: Correlation between (1) Price and Demand of commodities; (ii) Sales and Prices
of Commodities; (iii) Volume and pressure of a perfect gas; (iv) sales of sweaters and day
temperature etc are the cases of negative correlation
ZERO CORRELATION: If there exists no relationship between two sets of measures or
variables .Eg. Intelligence and Height.
COEFFICIENT OF CORRELATION
The ratio indicating the degree of relationship between two related variables.
For a perfect POSITIVE CORRELATION the coefficient of correlation is+1.
For a perfect NEGATIVE CORRELATION the coefficient of correlation is-1.
Positive coefficient of correlation varies from0 to +1.
 Negative coefficient of correlation varies from0 to -1.
USES OF CORRELATION
It helps to determine the validity of a test.
It helps to determine the reliability of a test.
It indicates the nature of the relationship between two variables.
It helps to ascertain the traits and capacities of pupils.
CO PUTATION OF COEFFICIENTOF CORRELATION
There are two different methods ofcomputing coefficient of correlation . They are,
RANK DIFFERENCEMETHOD
PRODUCT MOMENT METHOD
PRODUCT O ENTETHOD
Most widely used measure of correlation.
This method is also known as Pearson’s product moment method in honour of Karl
Pearson, who is said to be the inventor of this method.
The coefficient of correlation computed by this method is known as the product moment
coefficient of correlation or Pearson’s correlation coefficient.
It is represented as ‘r’.
Pearson Correlation Coefficient:
The Pearson correlation coefficient is just one of many types of coefficients in the field of
statistics. The following lesson provides the formula, examples of when the coefficient is
used, its significance and a quiz to assess your knowledge on the topic. Pearson Correlation
Coefficient The Pearson correlation coefficient is a very helpful statistical formula that
measures the strength between variables and relationships. In the field of statistics, this
formula is often referred to as the Pearson R test. When conducting a statistical test between
two variables, it is a good idea to conduct a Pearson correlation coefficient value to determine
just how strong that relationship is between those two variables.
Formula:
In order to determine how strong the relationship is between two variables, a formula must be
followed to produce what is referred to as the coefficient value. The coefficient value can
range between -1.00 and 1.00. If the coefficient value is in the negative range, then that
means the relationship between the variables is negatively correlated, or as one value
increases, the other decreases. If the value is in the positive range, then that means the
relationship between the variables is positively correlated, or both values increase or decrease
together. Let's look at the formula for conducting the Pearson correlation coefficient value.
Step one: Make a chart with your data for two variables, labeling the variables ( x) and ( y),
and add three more columns labeled ( xy), ( x^2), and ( y^2). A simple data chart might look
like this
More data would be needed, but only three samples are shown for purposes of example
Step two: Complete the chart using basic multiplication of the variable values.
Step three: after you multiple all the values

to complete the chart add up off the column
from top to bottom
Step four: Use this formula to find the Pearson

correlation coefficient value
Pearson Correlation Coefficient Formula

Step five: Once you complete the formula above by plugging in all the correct values, the
result is your coefficient value! If the value is a negative number, then there is a negative
correlation of relationship strength, and if the value is a positive number, then there is a
positive correlation of relationship strength. Note: The above examples only show data for
three people, but the ideal sample size to calculate a Pearson correlation coefficient should be
more than ten people

Correlation

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Introduction:

The correlation coefficient is a statistical measure of the strength of a linear relationship

Step three: after you multiple all the values

Step four: Use this formula to find the Pearson

Pearson Correlation Coefficient Formula

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