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A Statistical technique that is used to analyse the strength and direction of the relationship between two quantitative variable is called Correlational analysis. Two variables are said to be in correlation if the change in one of the variable results in a change in other variable. E g :- 1) Frequency of smoking and lungs damage , 2) Sales revenue and expenses incurred on advertising.
Importance of correlation
If variables are linearly related to each other then it helps in estimation of one from the other.
Advertisement and sales Prices and Demand
We use Regression Analysis to find the value of one variable from the other
TYPES OF CORRELATION
POSITIVE AND NEGATIVE LINEAR AND NON-LINEAR SIMPLE ,PARTIAL AND MULTIPLE
If the extent of change in one variable tends to have a constant ratio in the extent of change in another variable, then the correlation is said to be LINEAR.
If the extent of change in one variable tends to have no consistent ratio in the extent of change in another variable, then the correlation is said to be NON-LINEAR.
Methods of correlation
graphic
algebraic
Scatter Diagram
Scatter diagram is a graph or chart which helps to determine whether there is a relationship between two variables by examining the graph of the observed data.
A scattered diagram can give us two types of information: Pattern that indicate that the variables are related. If the variables are related,what kind of line or estimating equation,describes this relationship.
r=
N dxdy - dx dy
N dx-(dx)N dy-(dy)
REGRESSION
The statistical technique that express the relationship between two or more variables in the form of an equation to estimate the value of a variable, based on the given value of another variable is called regression analysis.
Independent Variable
1. The known variable is called the independent variable. 2. What we typically call X. 3. Variable that is controlled or manipulated. 4. It is plotted on horizontal axis. 5. An input variable.
Correlation
A statistical method used to determine whether a relationship between two or more variables exist. In correlation analysis we examine the degree of association between two variables
In linear regression analysis one variable is considered as dependent variable and other as independent variable
b = XY - nx y X2 n x2
a = y -bx
Where, a = Y-intercept b = slope of the best-fitting estimating line. X = value of independent variable Y = value of dependent variable x = mean of the values of the independent variable y = mean of the values of the dependent variable
COEFFICIENT OF DETERMINATION
The convenient way of interpreting the value of correlation coefficient is to use of square of coefficient of correlation which is called Coefficient of Determination. The Coefficient of Determination is r2.
r = 1- (Y- ) 2 (Y-Y )
Regression Analysis
Regression analysis is often employed in such a way as to test theories that the current value of one time series affects the current value of another time series. Regression analysis cannot explain seasonal and cyclical effects.
A time-series which displays a steady tendency of either upward or downward movement in the average (or mean) value of the forecast variable (let us say y) over a long period of time is called Trend. If we talk about commodities, Secular Trend is affected by prices, productions and sales of the commodity as well as the population of the area. Examples1. We find that over the last few years the sales of Laptop in Ranchi has increased. so, we can say that the sales of Laptop is showing an Upward Trend. 2. Use of Landline Phone has decreased over the last few years. This shows the Declining Trend of using Landline Phone.
SECULAR TREND
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CYCLICAL VARIATION
Cyclical variations are long-term movements that represent consistently recurring rises and declines in activity. Timing is the most important factor which affect the Cyclical Variations.
for example- Business Cycle, it consists of the recurrence of the up and down movements of business activity
Prosperity or boom
SEASONAL VARIATION
Seasonal variations are those periodic movements in business activity which occur regularly every year. Since these variations repeat during a period of twelve months so, they can be predicted fairly accurately.
Seasonal Variations are caused by climate and weather conditions, customs, festivals and habits. for example-Sales of Cold-drinks goes up in summer season than any other season
Sales of Cold-drinks
Units 20000 18000
16000
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IRREGULAR VARIATION
Irregular variations refer to such variations in business activity which do not repeat in a definite pattern. In these type of variations the pattern of the variable is unpredictable. Irregular Variations are caused by unpredictable factors like natural disasters (earthquakes, floods, wars etc.).These are unpredictable and no one has control over it.
For example-Production of cars tremendously went down after earthquake came in Japan in Nov 2011.
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Thank you