Correlation & Regression

Dr. T. T. Kachwala

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What is Correlation Analysis?

Correlation Analysis measures the degree of

linear association between two or more
variables. If a change in one variable results in
a corresponding change in the other variable
either in the same direction or in the opposite
direction, we say the variables are correlated.

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Classification and Methods of Measuring Correlation

 Classification of Correlation
1. Positive and Negative correlation
2. Simple and Multiple correlation
3. Linear and Non-linear correlation

 Methods of Measuring Correlation

1. Scatter Diagram
2. Karl Pearson’s Correlation Coefficient
3. Spearman’s Rank Correlation Coefficient

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Karl Pearson’s Correlation Coefficient

Ungrouped Data
xy
r
 x 2  y 2

x  X-X and y  Y-Y

X Y
X Y
n n
The value of ‘r’ lies between -1 & +1
Karl Pearson’s Correlation Coefficient

Grouped Data

fxy
r
fx 2  fy 2

x m-x and ym-Y

fm fm
X  Y (for a continuous series)
f f

The value of ‘r’ lies between -1 & +1

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Spearman’s Rank Correlation Coefficient

6D 2
rs  1 
N (N 2 - 1)

Where rs denotes rank coefficient of correlation and D refers

to the difference of ranks between paired items in two series.

The value of this coefficient ranges between +1 & -1

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What is Regression Analysis?

Regression Analysis is the study of the dependence of one

variable (dependent variable) on one or more other variable
(explanatory variable) in order to determine the average value of
the dependent variable given the values of the explanatory
variable.
Based on the past data, we calculate the regression model
(coefficients) & then using the regression model we estimate the
average value of the dependent variable for given or known value
of the independent variable
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 Regression Analysis

The regression equation of Y on X is expressed as follows:

Ŷi  β̂1  β̂ 2 X i

Where

Ŷi is the estimate of the dependant variable Y

β̂1 is the regression coefficient (Intercept term)

β̂ 2 is the regression coefficient (Slope of the line)

X i is the explanatory variable

Regression Analysis
Regression Analysis

The following are the formulas for the estimators; β̂1 and β̂ 2

 x i yi
β̂ 2 
x i2

β̂1  Y - β̂ 2 X

Where x i  Xi - X
y i  Yi - Y

X and Y are the respective arithemati c mean

The Coefficient of Determination = r2 (0  r2  1)