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INTRODUCTION
Definition
Correlation (r) is the statistical measure of how two Variables move in
relation to each other.
It measures the relative strength of the relationship between two
variables
Correlation is computed into what is known as the correlation
coefficient,
which
ranges
between
-1
and
+1.
Coefficient of correlation
-1 < r < +1
Strong negative
relationship
Strong positive
relationship
r = 0 : Indicates no linear relationship between the research variables
-1 < r < +1
The + and signs are used for explaining the positive linear correlations
and negative linear correlations respectively
2.
3.
SCATTER DIAGRAMS
This is a graph in which the individual data points are plotted in two-dimensions as
presented below;
Moderate fit
Points clustered closely around a line show a strong correlation. The line is a good
predictor (good fit) with the data. The more spread out the points, the weaker the
correlation, and the less good the fit.
The line is a REGRESSSION line (Y = a + bX)
Cont
Its defined as the measure of the strength of the linear relationship between
two variables that is defined in terms of the (sample) covariance of the
variables divided by their (sample) standard deviations.
This coefficient assumes the following:
cov( x, y )
r
x . y
OR
n XY X
r xy
n X
( X ) 2 n Y 2 ( Y ) 2
Illistration
From the following data find the coefficient of correlation by Karl
Pearson method
X: 6, 2, 10, 4, 8
Y: 9, 11, 5, 8, 7
Sol.cont.
X
30
6
N
5
Y 40
8
N
5
x. y
26
26
0.92
2
2
40.20
800
x
.
y
6 D 2
N (N
1)
where
D Rx R y
Rx rank .of . X
R y rank .of . y
Illustration
Calculate the spearmans rank correlation coefficient between
advertisement cost and sales from the following data
Advertisement cost : 39, 65, 62, 90, 82, 75, 25, 98, 36, 78
Sales(Shs):
47, 53, 58, 86, 62, 68, 60, 91, 51, 84
R-x
R-y
39
47
10
-2
65
53
-2
62
58
90
86
82
62
-2
75
68
25
60
10
16
98
91
36
51
78
84
D2
30
Cont.
R 1
6 D
N N
6(30)
R 1 3
10 10
180
R 1
990
R 0.82
3
Nonlinear Relationships
Conclusions
Correlation is the linear association between two numeric variables e.g
variables X and Y.
The correlation (r) ranges from -1 to +1
where
-1 < r < 1
If r < 0 then there is a negative correlation between X and Y, i.e. as X
increases Y generally decreases
If r > 0 then there is a positive correlation between X and Y, i.e. as X
increases Y generally increases
The close r is to 0 the weaker the linear association between X and Y.
strong
-1
intermediate
-0.75
-0.25
weak
weak
indirect
perfect
correlation
intermediate
0.25
strong
0.75
Direct
no relation
perfect
correlation
No Relationship (r = .00)
Information about Explanatory Flexibility tells you nothing about Emotional
Insight
1
-.5
0.0
.5
Explanatory Flexibility
1.0
1.5
2.0
2.5
3.0
3.5
REFERENCES
Dhrymes, P. J.: Econometrics: Statistical Foundations and Applications,
Harper & Row, New York, 1970.
Fomby, Thomas B., Carter R. Hill, and Stanley R. Johnson: Advanced
Econometric Methods, Springer-Verlag, New York, 1984.
Goldberger, A. S.: A Course in Econometrics, Harvard University Press,
Cambridge, Mass., 1991.
Harvey, A. C.: The Econometric Analysis of Time Series, 2d ed., MIT Press,
Cambridge, Mass., 1990.
Kothari CR, Research methodology: an introduction. New Delhi, Vikas
publishing house Pvt ltd 2000
Emory C William, Business research methods. Illinois: Richard D. Irwin,
Inc. Homewood 2001
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