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Correlation Notes

The document discusses correlation, defining it as the extent of linear relation between two variables, and categorizes it into positive, negative, and no correlation. It explains methods for determining correlation, such as scatter plots and covariance, highlighting their advantages and disadvantages. Additionally, it contrasts covariance and correlation, noting that while covariance indicates the direction of the relationship, correlation measures its strength.

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29 views17 pages

Correlation Notes

The document discusses correlation, defining it as the extent of linear relation between two variables, and categorizes it into positive, negative, and no correlation. It explains methods for determining correlation, such as scatter plots and covariance, highlighting their advantages and disadvantages. Additionally, it contrasts covariance and correlation, noting that while covariance indicates the direction of the relationship, correlation measures its strength.

Uploaded by

prathameshmaindarge8
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Correlation.

The extend of linear relation between the two variable is called as

For example 1) Rain fall and agricultural production


Types of correlation
1. Positive Correlation
2. Negative Correlation
3. No correlation

1. positive correlation.
If two variables change in the same direction (i.e. if one increases the other
also increases, or if one decreases, the other also decreases), then this is called a
positive correlation.
For example: Advertising and sales.

Some other examples of series of positive correlation are:


(i) Heights and weights;
(ii) Household income and expenditure;
(iii) Price and supply of commodities;
(iv) Amount of rainfall and yield of crops.

2. Negative correlation.
If two variables change in the opposite direction (i.e. if one increases, the
other decreases and vice versa), then the correlation is called a negative correlation.

For example: T.V. registrations and cinema attendance.

Some other examples of series of negative correlation are:


(i) Volume and pressure of perfect gas;
ii) Current and resistance [keeping the voltage constant]
(iii) Price and demand for goods.

3) No Correlation:
The change in one variable is not related to other variable ,then we say that there is no
correlation
For example ,Height of student and his examination marks , Divident on share and intereston debenture.

METHODS OF DETERMINING CORRELATION

We shall consider the following most commonly used methods.

1. Scatter Plot
2. Karl Pearson’s coefficient of correlation
3. Spearman’s Rank-correlation coefficient.
Scatter Plot (Scatter diagram or dot diagram)

Scatter Plots (also called scatter diagrams) are used to graphically investigate the
possible relationship between two variables without calculating any numerical
value. In this method, the values of the two variables are plotted on a graph paper.
One is taken along the horizontal (X-axis) and the other along the vertical (Y-axis).
By plotting the data, we get points (dots) on the graph which are generally
scattered and hence the name ‘Scatter Plot’.
The manner in which these points are scattered, suggest the degree and the
direction of correlation. The degree of correlation is denoted by ‘r’ and its direction
is given by the signs positive and negative.
Draw a scatter plot for the given data that shows the number of games played and scores
obtained in each instance.

No. of
3 5 2 6 7 1 2 7 1 7
games

Scores 80 90 75 80 90 50 65 85 40 100

Merits and Demerits of scatter diagram


Merits
1. Scatter diagram is a simplest method of studying correlation
2. It is easy to understand .

Demerits:
1. It is subjective method
2. It can not be applied to qualitative data.
Covariance
Covariance is a measure of the relationship between two random variables. The metric
evaluates how much – to what extent – the variables change together. In other words, it
is essentially a measure of the variance between two variables. However, the metric
does not assess the dependency between variables.
Unlike the correlation coefficient, covariance is measured in units. The units are
computed by multiplying the units of the two variables. The variance can take any
positive or negative values. The values are interpreted as follows:

● Positive covariance: Indicates that two variables tend to move in the same
direction.

● Negative covariance: Reveals that two variables tend to move in inverse


directions.

Formula for Covariance


The covariance formula is similar to the formula for correlation and deals with the
calculation of data points from the average value in a dataset. For example, the
covariance between two random variables X and Y can be calculated using the
Where:
● Xi– the values of the X-variable
● Yj– the values of the Y-variable
● X ̄ – the mean (average) of the X-variable
● Ȳ– the mean (average) of the Y-variable

Advantages of Covariance:
● Simple to calculate: The formula for covariance is straightforward and easy to
understand and implement.
● Measures linear relationship: Covariance effectively measures the linear
relationship between two variables. If two variables move together in the same
direction or opposite directions, covariance can accurately capture this
relationship.
Disadvantages of Covariance:
● Does not measure strength of relationship: Covariance only indicates the
direction of the relationship between variables, not its strength. A high covariance
value can be misleading if the units are different or the data points are clustered
tightly.

Covariance vs. Correlation


Covariance and correlation both primarily assess the relationship between variables.
The closest analogy to the relationship between them is the relationship between the
variance and standard deviation.

Covariance measures the total variation of two random variables from their expected
values. Using covariance, we can only gauge the direction of the relationship (whether
the variables tend to move in tandem or show an inverse relationship). However, it does
not indicate the strength of the relationship, nor the dependency between the variables.
On the other hand, correlation measures the strength of the relationship between
variables. Correlation is the scaled measure of covariance. It is dimensionless. In other
words, the correlation coefficient is always a pure value and not measured in any units.
Properties of Covariance

2. Karl pearson’s Coefficient of correlation


Let’s understand the Rank Correlation Formula with an example.

Example: The marks for nine students in Biology and Statistics are as follows:

Biology: 36, 24, 48, 18, 11, 44, 10, 7, 29

Statistics: 31, 32, 46, 24, 9, 50, 13, 5, 33

Calculate the student’s ranks in Biology and Statistics using the Spearman rank correlation.

Solution:

Step 1: Determine the rankings for each subject.


If you just want to rank by hand, arrange the scores from highest to lowest; or lowest to highest.
Thus, The Spearman’s rank correlation coefficient for this series of data is 0.9.

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