Management Issues

In the mail order business, excessive catalog costs quickly squeeze margins. Many mailings fail to reach receptive or active buyers. What is the relationship between various categories of mailing that delete inactive customers and the improvement in profit margins?
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Issue -2

Medium sized companies often have difficulty attracting the cream of the MBA , and when they are successful, they have trouble retaining them. What is the relationship between the ranking of candidates based on executive interviews and the ranking obtained from testing and assessment.
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Issue 3

Retained cash flow, undistributed profits plus depreciations, is a critical source of funding for equipment investment. During a period of decline, capital expenditure suffers. What is relationship between retained cash flow and equipment investment over the last year? Between cash flow and dividend growth ?
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Issue 4

Aggressive Reliance company have invested heavily in the retail market and their sales have grown 20% over the three largest companies in retail sector. Can we predict next years sales based on present investment. ( Nominal, Ordinal, Interval measures ,Regression)
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Data Types
Data Order Distance Unique Origin No No No No Remark

Nominal No Ordinal Yes

classification Determination of greater or lesser Rank or order (researcher know the order but not the amount of difference)

Interval Yes
Ratio Yes

Yes
yes

No
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Determination of equality of intervals or differences

Determination of 5 equality of ratios.

Yes

CORRELATION
Dr.Shurveer S. Bhanawat
Sr. Lecturer
Department of Accountancy & Business Statistics

B.N.P.G. College, Udaipur

(A grade Accredited by UGC-NAAC)
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Statistical Techniques

Uni -variate Bi-variate Multi-variate

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Correlation - Meaning

Correlation is a statistical technique which measures and analyses the degree or extent to which two or more variable fluctuate with reference to one another. Correlation coefficient reveal the direction and magnitude of relationship.
The sign of coefficient signifies the direction of relationship The magnitude (degrees) are expressed by a coefficient which ranges between -1 and +1. Shurveer

Types

Positive & Negative

Simple, partial & Multiple Linear and Non Linear Nonsense
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Methods

Karl Pearsons or Co-variance Method Rank Correlation Method Concurrent Deviation Method

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Karl Pearsons Method

Original When deviations are taken from actual mean r = summation dxdy/ n.sdx.sdy or

When deviations are taken from assumed mean r= Product Moment correlation
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Assumptions

Linear relationship Casual relationship Each of the Variable is being affected by a large number of independent contributory causes of such a nature as to produce normal distribution.

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Properties
1.

Pearson correlation coefficient lies between -1 and +1\

Correlation of coefficient is a pure number independent of the unit of measurement.

2.

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Properties
3. Correlation coefficient is independent of the change of origin (subtracting a constant from every value of x and y) and scale of reference (Dividing or multiplying by some constant every given value of X & Y)
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Spearmans rank Correlation Coefficient

When to use ( Ordinal ) It is applied in the problems in which data cannot be measured quantitatively but qualitative assessment is possible such as beauty, honesty etc.

R = 1-

6 summation D square N cube N

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Cases

When No digit is repeated When some digits are repeated.

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Concurrent Deviation Method

When to use The coefficient of concurrent deviation is of use, generally, in indicating relationship between short term oscillations.

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Testing the Significance of r

Is the coefficient representing the relationship between two variables real or does it occur by chance? Basis for testing
Probable Error Student t Test ( n<30)
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Probable Error

P.E. is a old measure of ascertaining the reliability of the value of Pearsons coefficient of correlation. P.E. = 0.6745*(1- r square)/under root n An amount added to and deducted from the coefficient of correlation produce a range within which coefficient of correlation of other groups selected from same series at random will fall, with a probability of 50%
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Functions

Determination of limit
Correlation of population = r _+ P.E (r)

Test of significance.
If r < 6P.E. then it is not significant. Perhaps there is no evidence of correlation If r > 6P.E. then it is significant correlation exists. (r / P.E.) > 6 = significant
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Student t Test

t test is used. Ho: p=0 this implies no correlation between the variables in the population. H1 : p>0 This implies that there is positive correlation in the population.

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Formulae
r

t=

Under root n-2

Under root 1- r square If calculated t< critical value at 5% level of significance, the variable is not correlated. (Accepted) If calculated t > critical value, r is significant and variables are correlated.
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Coefficient of Determination
(R

square)

The coefficient of determination is preferred to the coefficient of correlation because it explains the process of variation in the dependent variable which is explained by change in the independent variable. It is highly useful measure.

R square = Explained Variance/Total Variance

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Exercise: Produce a correlation Matrix using computer Program

BSE top 30 companies
Rs. In lacs

Asset s
1000 956 1890 1133 11682 6080 31044 5878 1721

market sales value

1510 785 2533 532 3790 635 3296 3204 981 697 1271 1783 752 4149 291 2705 2100 1573

NP
82.6 89 176 82.3 413.5 18.1 337.3 145.8 172.6
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Cash flow
126.4 191.2 267 137.1 806.8 35.2 425.5 380 326.6

No. of employee ('000)

16.6 5 44 2.1 11.9 3.7 20.1 10.8 1.9
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Suggested Readings

Business Research Methods by Donald R Cooper Pamela S Schindler Irwin Mcgraw-Hill Multivariate Data Analysis
Hair, Black, Babin, Anderson, Tatham Pearson Education

Business Research Method K.R. Sharma Statistics- Theory Methods and Applications D.C. Sanceti, V.K.Kapoor Business Statistics
R.S. Bhardwaj
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Excel Books

25

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