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Introduction
So far, we have confined ourselves to such series where various items assumed different values of one variable. There can be, however, such series also where each item assumes the values of two or more variables. For example, heights and weights of a group of persons.
If, besides heights and weights, the chest measurements were also taken, each member of the group would assume three values relating to three different variables. In such situations, sometimes the values of the various variables are inter-related. Similarly, if data are collected about the prices of a commodity and the quantities sold at different prices, two series would be obtained. In these two series we are again likely to find some relationship.
Such relationships can be find in many other types of series also. The term correlation (or co-variation) indicates the relationship between two (or more) such variables in which with changes in the value of one variable, the value of the other variable also changes.
Definition
If two or more quantities vary in sympathy so that movements in the one tend to be accompanied by corresponding movements in the other(s) then they are said to be correlated.
Utility
The study of correlation reduces the range of uncertainty associated with decision making. Correlation analysis is very helpful in understanding economic behavior. Correlation study helps in identifying such factors which can stabilize a disturbed economic situation.
Utility
Correlation study helps to estimate the likely change in a variable with a particular amount of change in a related variable. (Here we take help of regression analysis.) Inter-relationship studies between different variables are very helpful tools in promoting research and opening new frontiers of knowledge.
There can be correlation between two variables due to any one or more of the following reasons: Cause-effect relationship between the variables. Both the correlated variables are being affected by a third variable. Related variables might be mutually affecting each other so that neither of them could be designated as a cause or effect.
There can be correlation between two variables due to any one or more of the following reasons: Correlation may be due to random or chance factors. There might be a situation of nonsense or spurious correlation between the two variables.
Types of Correlation
Positive or negative correlation Simple, multiple or partial correlation Linear or non-linear correlation
Scatter Diagram
It indicates the scatter of various points, when the two variables are represented on the two axes. These points are not in any mathematical relationship and as such they only indicate the trend of the data.
Positive Correlation
18
16 14
12
10
0 0 10 20 30 40 50 60 70
Negative Correlation
35 30
25
20
15
10
0 0 5 10 15 20 25 30 35
No Correlation
35 30
25
20
15
10
0 0 5 10 15 20 25 30 35 40
Correlation Graph
Graph can also be used to study correlation. Graph discloses whether there is any relationship, and if there is, whether it is positive or negative.
Positive Correlation
80
70
60
50
40
30
20
10
0 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981
Negative Correlation
80
70 60
50
40
30
20
10
0 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981
20
40
60
80
100
120
140
160
0 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 Supply ('000 quintal) Price per quintal (in Rs.)
No Correlation
140
120
100
80
60
40
20
0 0 2 4 6 8 10 12 14 16 18
120
100
80
60
40
20
0 0 2 4 6 8 10 12 14 16 18
Find out the coefficient of correlation between the sales and expenses of the following 10 firms (figures in '000 Rs.)
Firms: Sales: Expenses: 1 2 3 4 5 6 7 8 9 10 50 50 55 60 65 65 65 60 60 50 11 13 14 16 16 15 15 14 13 13
D I R E C T M E T H O D
X
50 50 55 60 65 65 65 60 60 50 58 =6 r = 0.787
S H O R T C U T
M E T H O D
X Y XY X^2 Y^2 50 11 550 2500 121 50 13 650 2500 169 55 14 770 3025 196 60 16 960 3600 256 65 16 1040 4225 256 65 15 975 4225 225 65 15 975 4225 225 60 14 840 3600 196 60 13 780 3600 169 50 13 650 2500 169 580 140 8190 34000 1982
50 50 55 60 65 65 65 60 60 50 Ax = 57
The following are the monthly figures of the advertising expenditure and sales of a firm. It is generally found that advertising expenditure has its impact on sales after two months. Allowing for this time lag, calculate the coefficient of correlation.
Month Jan Feb Mar Apr May Jun Ad. Exp. 50 60 70 90 120 150 Sales 1200 1500 1600 2000 2200 2500 Month Jul Aug Sep Oct Nov Dec Ad. Exp. 140 160 170 190 200 250 Sales 2400 2600 2800 2900 3100 3900
Month Ad. Exp. Solution: 50 Adjustment required: Jan Feb 60 Mar 70 Apr 90 May 120 Jun 150 Jul 140 Aug 160 Sep 170 Oct 190 Nov 200 Dec 250
Sales 1200 1500 1600 2000 2200 2500 2400 2600 2800 2900 3100 3900
D I R E C T
M E T H O D
Y 50 1600 60 2000 70 2200 90 2500 120 2400 150 2600 140 2800 160 2900 170 3100 190 3900 1200 26000 120 2600 47.117 603.324 0.918 ANS
dx dy -70 -1000 -60 -600 -50 -400 -30 -100 0 -200 30 0 20 200 40 300 50 500 70 1300
dxdy (dx)^2 70000 4900 36000 3600 20000 2500 3000 900 0 0 0 900 4000 400 12000 1600 25000 2500 91000 4900 261000 22200 2220
(dy)^2 1000000 360000 160000 10000 40000 0 40000 90000 250000 1690000 3640000 364000
C h a n g e o f S c a l e
dx dy dxdy (dx)^2 (dy)^2 5 16 -7 -10 70 49 100 6 20 -6 -6 36 36 36 7 22 -5 -4 20 25 16 9 25 -3 -1 3 9 1 12 24 0 -2 0 0 4 15 26 3 0 0 9 0 14 28 2 2 4 4 4 16 29 4 3 12 16 9 17 31 5 5 25 25 25 19 39 7 13 91 49 169 120 260 261 222 364 12 26 22.2 36.4 4.712 6.033 0.918 ANS
C h a n g e o f O r i g i n
0 0 10 400 20 600 40 900 70 800 100 1000 90 1200 110 1300 120 1500 140 2300 700 10000 70 1000 47.117 603.324 0.918 ANS
dxdy (dx)^2 70000 4900 36000 3600 20000 2500 3000 900 0 0 0 900 4000 400 12000 1600 25000 2500 91000 4900 261000 22200 2220
(dy)^2 1000000 360000 160000 10000 40000 0 40000 90000 250000 1690000 3640000 364000
dx dy dxdy (dx)^2 (dy)^2 0 0 -7 -10 70 49 100 1 4 -6 -6 36 36 36 2 6 -5 -4 20 25 16 4 9 -3 -1 3 9 1 7 8 0 -2 0 0 4 10 10 3 0 0 9 0 9 12 2 2 4 4 4 11 13 4 3 12 16 9 12 15 5 5 25 25 25 14 23 7 13 91 49 169 70 100 261 222 364 7 10 22.2 36.4 4.712 6.033 0.918 ANS
Age of Husbands (X-Series) Age of Wives (Y- 20-30 30-40 40-50 50-60 60-70 Total Series) 15-25 25-35 5 9 10 3 25 2 17 37
35-45 45-55
55-65 Total
1 20 -
12 4
2 16
4
5
2 7
15 25
6 100
44
24
y dy dx
Age of Husbands (X-Series) 20-30 30-40 40-50 50-60 60-70 Total X (Ax=45) (f) 25 35 45 55 65 -20 -10 0 10 20
fdy fdy^2
20 30 40 50 60
where d = difference between ranks of the two series N = number of pair of observations
Calculate Spearmans Rank coefficient of correlation: Price of Tea 120 134 150 115 110 140 142 100 Price of Coffee 75 88 95 70 60 80 81 50
Solution: X Y Rx Ry D D^2 120 75 4 4 0 0 134 88 5 7 -2 4 150 95 8 8 0 0 115 70 3 3 0 0 110 60 2 2 0 0 140 80 6 5 1 1 142 81 7 6 1 1 100 50 1 1 0 0 D^2= 6
The following data relate to the marks obtained by 10 students of a class in Statistics and Accounting. Calculate Spearmans Rank coefficient of correlation: Statistics Accounting 30 38 28 27 28 23 30 33 28 35 29 27 22 29 20 29 18 21 27 22
Solution:
X Y Rx Ry D D^2 30 29 6.5 9 -2.5 6.25 38 27 10 6.5 3.5 12.25 28 22 4 4.5 -0.5 0.25 27 29 2 9 -7 49 28 20 4 2 2 4 23 29 1 9 -8 64 30 18 6.5 1 5.5 30.25 33 21 8 3 5 25 28 27 4 6.5 -2.5 6.25 35 22 9 4.5 4.5 20.25 TOTAL 217.5
Solution:
where c = number of concurrent deviations N = number of deviations (one less than the
number of pair of observations)
Calculate coefficient of concurrent deviations for the following data: Supply 65 40 35 75 63 80 35 20 80 60 50 Demand 60 55 50 56 30 70 40 35 80 75 80
Solution:
X Y Dx Dy DxDy 65 60 40 55 - + 35 50 - + 75 56 + + + 63 30 - + 80 70 + + + 35 40 - + 20 35 - + 80 80 + + + 60 75 - + 50 80 - + TOTAL 9
From the data given below find i. Karl Pearsons coefficient of correlation ii. Spearmans rank correlation coefficient iii. Coefficient of concurrent deviation X Y 57 16 24 65 17 18 9 40 33 48 19 7 9 20 4 15 6 24 14 13
Karl Pearsons Coefficient: X Y dx dy dxdy 57 19 24.3 5.9 143.37 16 7 -16.7 -6.1 101.87 24 9 -8.7 -4.1 35.67 65 20 32.3 6.9 222.87 17 4 -15.7 -9.1 142.87 18 15 -14.7 1.9 -27.93 9 6 -23.7 -7.1 168.27 40 24 7.3 10.9 79.57 33 14 0.3 0.9 0.27 48 13 15.3 -0.1 -1.53 32.7 13.1 865.3
dx^2 590.49 278.89 75.69 1043.29 246.49 216.09 561.69 53.29 0.09 234.09 3300.1
dy^2 34.81 37.21 16.81 47.61 82.81 3.61 50.41 118.81 0.81 0.01 392.9 r = 0.760
Spearmans Coefficient: X Y Rx Ry 57 19 9 8 16 7 2 3 24 9 5 4 65 20 10 9 17 4 3 1 18 15 4 7 9 6 1 2 40 24 7 10 33 14 6 6 48 13 8 5