Correlation and Regression

Correlation

CORRELATION is an important statistical concept which refers to association or interrelationship among variables.

The reasons of studying correlation is for one to be capable to establish a relationship, plan and control the inputs as independent variables and the output as dependent variables

In business one may be interested to establish whether there exists a relationship among the

i. Amount of fertilizer applied on a described farm and the resulting harvest

ii. Amount of experience one has and the corresponding performance/presentation

iii. Amount of money spent on advertisement and the expected incomes after sale of the goods or service

There are two methods which measure the degree of correlation among two variables these are denoted by R and r.

(a) Coefficient of correlation denoted by r, this gives a measure of the strength of association among two variables one the dependent variable the other the independent variable r can range between -1 and +1 for perfect positive correlation and perfect negative correlation respectively along with zero indicating no relation that is for perfect positive correlation y increase linearly along with x increment.

(b) Rank correlation coefficient denoted by R is utilized to measure association among two sets of ranked or ordered data.  R can also vary from +1, perfect positive rank correlation and -1 perfect negative rank correlation whereas O or any type of number near zero representing no correlation.