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CORRELATION ANALYSIS
1101091-1101100 PGDM-B
Introduction
Correlation a LINEAR association between two random variables Correlation analysis show us how to determine both the nature and strength of relationship between two variables When variables are dependent on time correlation is applied Correlation lies between +1 to -1
A zero correlation indicates that there is no relationship between the variables A correlation of 1 indicates a perfect negative correlation A correlation of +1 indicates a perfect positive correlation
Types of Correlation
There are three types of correlation
Types
Type 1
Type 2
Type 3
Type1
Positive Negative
No
Perfect
If two related variables are such that when one increases (decreases), the other also increases (decreases). If two variables are such that when one increases (decreases), the other decreases (increases) If both the variables are independent
Type 2
Linear
Non linear
When plotted on a graph it tends to be a perfect line When plotted on a graph it is not a straight line
Type 3 Simple Multiple Partial
Two independent and one dependent variable One dependent and more than one independent variables One dependent variable and more than one independent variable but only one independent variable is considered and other independent variables are considered constant
Methods of Studying Correlation
Scatter Diagram Method
Karl Pearson Coefficient Correlation of Method
Spearmans Rank Correlation Method
Strong relationship = good linear fit
180 160
Correlation: Linear Relationships
160 140
140
Symptom Index
S ymptom Index
0 50 100 150 200 250
120 100 80 60 40 20 0
120 100 80 60 40 20 0 0 50 100 150 200 250
Drug A (dose in mg)
Drug B (dose in mg)
Very good fit
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 = bX + a)
Coefficient of Correlation
A 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
Represented by r
r lies between +1 to -1 Magnitude and Direction
-1 < r < +1 The + and signs are used for positive linear correlations and negative linear correlations, respectively
r xy
n X ( X ) nY (Y )
2 2 2 2
n XY X Y
Shared variability of X and Y variables on the top Individual variability of X and Y variables on the bottom
Interpreting Correlation Coefficient r
strong correlation: r > .70 or r < .70 moderate correlation: r is between .30 & .70 or r is between .30 and .70 weak correlation: r is between 0 and .30 or r is between 0 and .30 .
Coefficient of Determination
Coefficient of determination lies between 0 to 1
Represented by r2
The coefficient of determination is a measure of how well the regression line represents the data If the regression line passes exactly through every point on the scatter plot, it would be able to explain all of the variation The further the line is away from the points, the less it is able to explain
r 2, is useful because it gives the proportion of the variance (fluctuation) of one variable that is predictable from the other variable It is a measure that allows us to determine how certain one can be in making predictions from a certain model/graph
The coefficient of determination is the ratio of the explained variation to the total variation
The coefficient of determination is such that 0 < r 2 < 1, and denotes the strength of the linear association between x and y
The Coefficient of determination represents the percent of the data that is the closest to the line of best fit For example, if r = 0.922, then r 2 = 0.850 Which means that 85% of the total variation in y can be explained by the linear relationship between x and y (as described by the regression equation) The other 15% of the total variation in y remains unexplained
Spearmans rank coefficient
A method to determine correlation when the data
is not available in numerical form and as an
alternative the method, the method of rank
correlation is used. Thus when the values of the
two variables are converted to their ranks, and there from the correlation is obtained, the correlations known as rank correlation.
Computation of Rank Correlation
Spearmans rank correlation coefficient can be calculated when
Actual ranks given Ranks are not given but grades are given but not repeated Ranks are not given and grades are given and repeated
Testing the significance of correlation coefficient
