Lecture Managerial economics: Chapter 27 - Dr. Hasnain Naqvi

Finding the relationship between two quantitative variables without being able to infer causal relationships Correlation is a statistical technique used to determine the degree to which two variables are related. In this chapter provides knowledge of correlation & regression. | Correlation & Regression Correlation Finding the relationship between two quantitative variables without being able to infer causal relationships Correlation is a statistical technique used to determine the degree to which two variables are related Rectangular coordinate Two quantitative variables One variable is called independent (X) and the second is called dependent (Y) Points are not joined No frequency table Scatter diagram Example Scatter diagram of weight and systolic blood pressure Scatter diagram of weight and systolic blood pressure Scatter plots The pattern of data is indicative of the type of relationship between your two variables: positive relationship negative relationship no relationship Positive relationship Negative relationship Reliability Age of Car No relation Correlation Coefficient Statistic showing the degree of relation between two variables Simple Correlation coefficient (r) It is also called Pearson's correlation or product moment . | Correlation & Regression Correlation Finding the relationship between two quantitative variables without being able to infer causal relationships Correlation is a statistical technique used to determine the degree to which two variables are related Rectangular coordinate Two quantitative variables One variable is called independent (X) and the second is called dependent (Y) Points are not joined No frequency table Scatter diagram Example Scatter diagram of weight and systolic blood pressure Scatter diagram of weight and systolic blood pressure Scatter plots The pattern of data is indicative of the type of relationship between your two variables: positive relationship negative relationship no relationship Positive relationship Negative relationship Reliability Age of Car No relation Correlation Coefficient Statistic showing the degree of relation between two variables Simple Correlation coefficient (r) It is also called Pearson's correlation or product moment correlation coefficient. It measures the nature and strength between two variables of the quantitative type. The sign of r denotes the nature of association while the value of r denotes the strength of association. If the sign is +ve this means the relation is direct (an increase in one variable is associated with an increase in the other variable and a decrease in one variable is associated with a decrease in the other variable). While if the sign is -ve this means an inverse or indirect relationship (which means an increase in one variable is associated with a decrease in the other). The value of r ranges between ( -1) and ( +1) The value of r denotes the strength of the association as illustrated by the following diagram. -1 1 0 strong strong intermediate intermediate weak weak no relation perfect correlation perfect correlation Direct indirect If r = Zero this means no association or correlation between the two variables. If 0 < r < = weak correlation. If ≤

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