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Correlation Coefficient

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Rahul Dalvi
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28 views

Correlation Coefficient

Uploaded by

Rahul Dalvi
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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In statistics, Correlation studies and measures the direction and extent of relationship

among variables, so the correlation measures co-variation, not causation.


Therefore, we should never interpret correlation as implying cause and effect relation.
For example, there exists a correlation between two variables X and Y, which means
the value of one variable is found to change in one direction, the value of the other
variable is found to change either in the same direction (i.e. positive change) or in the
opposite direction (i.e. negative change).
Furthermore, if the correlation exists, it is linear, i.e. we can represent the relative
movement of the two variables by drawing a straight line on graph paper.

Correlation Coefficient
The correlation coefficient, r, is a summary measure that describes the extent of the
statistical relationship between two interval or ratio level variables
. The correlation coefficient is scaled so that it is always between -1 and +1. When r is
close to 0 this means that there is little relationship between the variables and the
farther away from 0 r is, in either the positive or negative direction, the greater the
relationship between the two variables.
The two variables are often given the symbols X and Y. In order to illustrate how the two
variables are related, the values of X and Y are pictured by drawing the scatter diagram,
graphing combinations of the two variables.
The scatter diagram is given first, and then the method of determining Pearson’s r is
presented. From the following examples, relatively small sample sizes are given. Later,
data from larger samples are given.

Scatter Diagram
A scatter diagram is a diagram that shows the values of two variables X and Y, along
with the way in which these two variables relate to each other. The values of variable X
are given along the horizontal axis, with the values of the variable Y given on the
vertical axis.
Later, when the regression model is used, one of the variables is defined as an
independent variable, and the other is defined as a dependent variable. In regression,
the independent variable X is considered to have some effect or influence on the
dependent variable Y. Correlation methods are symmetric with respect to the two
variables, with no indication of causation or direction of influence being part of the
statistical consideration. A scatter diagram is given in the following example. The same
example is later used to determine the correlation coefficient.
Types of Correlation
The scatter plot explains the correlation between the two attributes or variables. It
represents how closely the two variables are connected. There can be three such
situations to see the relation between the two variables –

 Positive Correlation – when the values of the two variables move in the same direction
so that an increase/decrease in the value of one variable is followed by an
increase/decrease in the value of the other variable.
 Negative Correlation – when the values of the two variables move in the opposite
direction so that an increase/decrease in the value of one variable is followed by
decrease/increase in the value of the other variable.
 No Correlation – when there is no linear dependence or no relation between the two
variables.

Correlation Formula
Correlation shows the relation between two variables. Correlation coefficient shows the
measure of correlation. To compare two datasets, we use the correlation formulas.

Pearson Correlation Coefficient Formula


The most common formula is the Pearson Correlation coefficient used for linear
dependency between the data sets. The value of the coefficient lies between -1 to
+1. When the coefficient comes down to zero, then the data is considered as not
related. While, if we get the value of +1, then the data are positively correlated, and -1
has a negative correlation.

Where n = Quantity of Information


Σx = Total of the First Variable Value
Σy = Total of the Second Variable Value
Σxy = Sum of the Product of first & Second Value
Σx2 = Sum of the Squares of the First Value
Σy2 = Sum of the Squares of the Second Value
Linear Correlation Coefficient Formula
The formula for the linear correlation coefficient is given by;

Sample Correlation Coefficient Formula


The formula is given by:
rxy = Sxy/SxSy
Where Sx and Sy are the sample standard deviations, and Sxy is the sample covariance.

Population Correlation Coefficient Formula


The population correlation coefficient uses σ x and σy as the population standard
deviations and σxy as the population covariance.
rxy = σxy/σxσy

Correlation Example
Years of Education and Age of Entry to Labour Force Table.1 gives the number of years
of formal education (X) and the age of entry into the labour force (Y ), for 12 males from
the Regina Labour Force Survey. Both variables are measured in years, a ratio level of
measurement and the highest level of measurement. All of the males are aged close to
30, so that most of these males are likely to have completed their formal education.

Respondent Number Years of Education, X Age of Entry into Labour Force, Y

1 10 16

2 12 17

3 15 18
4 8 15

5 20 18

6 17 22

7 12 19

8 15 22

9 12 18

10 10 15

11 8 18

12 10 16

Table 1. Years of Education and Age of Entry into Labour Force for 12 Regina
Males
Since most males enter the labour force soon after they leave formal schooling, a close
relationship between these two variables is expected. By looking through the table, it
can be seen that those respondents who obtained more years of schooling generally
entered the labour force at an older age. The mean years of schooling are
= 12.4 years and the mean age of entry into the labour force is

= 17.8, a difference of 5.4 years.


This difference roughly reflects the age of entry into formal schooling, that is, age five or
six. It can be seen through that the relationship between years of schooling and age of
entry into the labour force is not perfect. Respondent 11, for example, has only 8 years
of schooling but did not enter the labour force until the age of 18. In contrast,
respondent 5 has 20 years of schooling but entered the labour force at the age of 18.
The scatter diagram provides a quick way of examining the relationship between X and
Y.

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