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Correlation Analysis

(Testing if One Variable is Correlated with another Variable)

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Introduction
• Correlation analysis is common in research.
• For example, previous researches used correlation analysis
to investigate the relationship between

 Motivation and Academic success


 High school grades and college academic performance
 Teacher quality and student success
 Crime rate and employment rate
 Product quality and customer satisfaction
 Salary and job satisfaction
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 Analysis of the relationships among variables is called
Correlation Analysis. It includes the measurement of the
correlation between the variables. It is only concerned with
the strength and direction (whether positive or negative) of
the relationship; no causal effect is implied.

 Scatter plot (or scatter diagram) can be used to show the


relationship between two numerical variables.

 Correlation coefficient is used to measure the direction and


strength of the linear relationship between variables.

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Pearson Correlation: Formula

Cov(X, Y)
r
Var (X)Var (Y)
where: X and Y are variables under consideration.
where: X and Y are variables under consideration.

Pearson Correlation is also called “Pearson r” or “r”)

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The Values of Pearson r

• Unit free
• Pearson r ranges from -1 to +1

-1 0 +1
• Positive and negative signs indicate the
direction of the relationship.

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Positive r
• The value of r is Scatter Plot Showing the Relationship
Between X and Y
positive if the values of
X and Y go in the same 6

direction
4

Example:

Y
2
X = Score in BEE Math
Y = Score in BEE English
0
0 1 2 3 4 5 6
X

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Negative r
• The value of r is Scatter Plot Showing the Relationship
negative if the values Between X and Y

of X and Y go in 6
opposite direction
4

Example:

Y
2
X = Employment Rate
Y = Crime rate
0
0 1 2 3 4 5 6
X

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Absolute value of r
The absolute value of r indicates the
strength of the linear relationship.
– The closer to 1.0 the stronger the linear
relationship
– The closer to zero the weaker the linear
relationship.

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Sample Data with r =1.0
Data set A
Scatter Plot of Data set A
X Y with its Estimated Line
(r=+1.0)
1 2
10

2 4 8
6
Y
3 6 4
2

4 8 0
0 1 2 3 4 5 6

5 10 X

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Sample Data with r close to 1.0
Data set B

Scatter Plot of Data set B


X Y with its Estimated Line
(r = +0.99)

1 2.5 10
8
2 3.5 6
Y
4
3 5.0 2

4 7.0 0
0 1 2 3 4 5 6
X
5 9.0
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Sample Data with r = -1.0
Data set C
Scatter Plot of Data set C
X Y with its Estimated Line
(r = -1.0)

1 10 10
8
2 8 6
Y
4
3 6
2

4 4 0
0 1 2 3 4 5 6

5 2 X

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Sample Data with r close to -1.0
Data set D

Scatter Plot of Data set D


X Y with its Estimated Line
(r = -0.96)

1 9 10
8
2 6.5 6
Y
3 6.9 4
2

4 3 0
0 1 2 3 4 5 6

5 1 X

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Sample Data with r close to 0
Data set E Scatter Plot of Data set E
with its Estimated Line
X Y (r = 0.04)

1 1 10
8
2 10 6
Y
3 7 4
2
4 9 0
0 1 2 3 4 5 6
5 2 X

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More on Scatter Plots
Y Y Y

X X X
r = -1 r = -.6 r=0

Y Y

X X
r = +1 r = +.3
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Pearson r: Guide Interpretation
(Note: Rule of Thumb only)

Absolute value of r Interpretation


.70 or higher Very Strong
.40 - .69 Strong
.30 - .39 moderate
.20 - .29 weak
.19 and below Negligible
Source: http://faculty.quinnipiac.edu/libarts/polsci/statistics.html

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When performing a correlation, you are testing
the null hypothesis

“Ho: There is no relationship between the two


variables. (Or, the two variables are not
correlated)”
against the alternative hypothesis

“Ha: There is relationship between the variables.


(Or, the two variables are correlated)”
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DECISION RULE:

• Reject the Ho if the p-value associated with


the computed Pearson r is less than .05.

• Do not reject Ho if the p-value associated with


the computed Pearson r is equal to or greater
than .05

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Testing Statistical Significance
• Researcher’s Goal: Investigate if there is correlation between the variables
in the population using the sample data drawn randomly from that
population.
• Testing for Statistical Significance. Because the researcher will make
inferences about the correlation in the population based only on
information contain in the sample data, then statistical significance should
be tested. A statistically significant finding (p < α; traditionally α = .05) is
one that is determined statistically to be very unlikely to happen by chance.

Suppose r = .4 with p=.02. This means that there is only 2% probability that
the observed relationship could have happened by chance. Or, there is a
high probability ( 98%) that the observed relationship would not happen by
chance. Thus, the researcher should reject the null hypothesis that the
variables are not correlated and conclude that the variables are significantly
correlated.
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Example 1: Correlation between product
quality, price, and company image

Research Question: Are there significant


relationships between product quality, price
and company image?

Hypothesis (Null form): There are no significant


relationship between product quality, price
and company image.
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Data set: hatco.sav

Variables:
• Price level (X2) - perceived level of price charged by product suppliers
• Price Flexibility (X3)- perceived willingness of representatives to negotiate
price on all types of purchases
• Product Quality (X7) - perceived level of quality of a particular product
• Manufacturer Image (X4)- overall image of the manufacturer/supplier
• Salesforce Image(X6) - overall image of the manufacturer's sales force

Notes: Data are perceptions of n=100 customers. Perceptions were measured


using graphic rating scale, where a ten centimeter line was drawn between
the endpoints, labeled "Poor" and "Excellent".

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Step-by-Step Procedure in SPSS
Step 1: CLICK Analyze > Correlate >Bivariate
Step 2: MOVE the following to the “Variables:” box
Price Level (X2)
Price Flexibility (X3)
Product Quality (X7)
Manufacturer’s Image (X4)
Salesforce Image (X6)
Step 3: CLICK Ok.

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SPSS Outputs
Correlations
Price Product Manufacturer Salesforce
Price Level Flexibility Quality Image Image
Price Level Pearson Correlation 1 -.487** .470** .272** .186
Sig. (2-tailed) .000 .000 .006 .064
N 100 100 100 100 100
Price Flexibility Pearson Correlation -.487 ** 1 -.448** -.116 -.034
Sig. (2-tailed) .000 .000 .250 .735
N 100 100 100 100 100
Product Quality Pearson Correlation .470 ** -.448 ** 1 .200* .177
Sig. (2-tailed) .000 .000 .046 .078
N 100 100 100 100 100
Manufacturer Image Pearson Correlation .272 ** -.116 .200* 1 .788**
Sig. (2-tailed) .006 .250 .046 .000
N 100 100 100 100 100
Salesforce Image Pearson Correlation .186 -.034 .177 .788** 1
Sig. (2-tailed) .064 .735 .078 .000
N 100 100 100 100 100
**. Correlation is significant at the 0.01 level (2-tailed).
*. Correlation is significant at the 0.05 level (2-tailed).

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Summary of SPSS Outputs
Table_
Correlation Matrix of Product Quality, Price and Company Image

1 2 3 4 5

1. Price Level 1 -.487** .470** .272** .186


2. Price Flexibility -.487** 1 -.448** -.116 -.034
3. Product Quality .470** -.448** 1 .200* .177
4. Manufacturer Image .272** -.116 .200* 1 .788**

5. Salesforce Image .186 -.034 .177 .788** 1


** p < .01; * p < .05, n=100

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