Study Note - 6
CORRELATION AND REGRESSION
This Study Note includes
6.1 Correlation & Co-efficient
6.2 Regression Analysis6.1 CORRELATION & CO-EFFICIENT
Till the previous chapter we have been mainly concerned with univariate data. In this chapter we study
bivariate and multivariate populations.
According to Ya-lun Chou, “There are two related but distinct aspects of the study of association between
variables. Correlation analysis and regression analysis. Correlation analysis has the objective of determining
the degree or strength of the relationship between variables. Regression analysis attempts to establish the
nature of the relationship between variables – that is, to study the functional relationship between the
variables and thereby provide a mechanism of prediction, or forecasting.”
6.1.1. Meaning
In our daily lives we notice that the bigger the house the higher are its upkeep charges, the higher rate of
interest the greater is the amount of saving, the rise in prices bring about a decrease in demand and the
devaluation of country’s currency makes export cheaper or import dearer.
The above example clearly shows that there exists some kind of relationship between the two variables.
Croxton and Cowden rightly said, “when relationship between two variables is of quantitative nature the
appropriate statistical tool for measuring and expressing it in formula is known as correlation. Thus correlation
is a statistical device which helps in analyzing the relationship and also the covariation of two or more
variables.
According to Simpson and Kafta “correlation analysis deals with the association between two or more
variables.” If two variables vary in such a way that movements in one are accompanied by movements in
the other, then these quantities are said to be correlated.
FUNDAMENTALS OF BUSINESS MATHEMATICS AND STATISTICS I 6.1