Quantitative techniques for business (1) - Correlation

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Quantitative techniques for business (1) - Correlation 

 

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Correlation :
 

Correlation refers to the relationship between any two or more variables
 

Two variables are said to be correlated if with a change in the value of one variable, there arises a change in the value of other variable also.

Eg. Price and demand

 

 

Utility and importance of Correlation

  

• Helps to measure the degree of relationship between different variables like price and demand, income and expenditure, advertising and sales, rainfall and agricultural yield.

 

• Helps in reducing the range of uncertainty in the matter of prediction 

• Powerful tool in the hand of economist.

• Helps in developing the concept of regression technique

• Used to make analysis , drawing conclusions, etc. in the research and statistical investigation

• Sampling errors can be calculated

 

 

Types of correlation :

  

• Positive correlation ( same direction – eg. price and supply)

 

• Negative correlation(opposite direction – eg. Price and demand)

• Simple correlation (two variables)

• Multiple correlation (three or more variables)

• Perfect correlation : +1 or -1(constant ratio)

• Imperfect correlation : between +1 or -1 (different ratio)

• Linear correlation (uniform ratio)

• Non – linear (not uniform) 

 

 

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