Properties of Correlation Coefficient, Importance or Significance of Correlation
🚩Timestamps:-
00:31 Properties of Correlation Coefficient
04:08 Additional Features
09:04 Importance or Significance of Correlation
13:48 Concluding Remarks
Learning Outcomes:-
Through this module, you will gain understanding
on:-
1. PROPERTIES OF CORRELATION COEFFICIENT
2. Importance or Significance of Correlation
PROPERTIES OF CORRELATION COEFFICIENT
(1)
r has no unit. It is a pure number. It means units of measurement are not parts
of r.
(2) A negative value of r indicates an inverse
relation, and if r is positive, the two variables move in the same direction.
(3)
If r = 0, the two variables are uncorrelated. There is no linear relation
between them. However, other types of relation may be there.
(4)
If r = 1 or r = - 1, the correlation is perfect or proportionate. A high value
of r indicates strong linear relationship, i.e., + 1 or -1.
(5)
The value of the correlation coefficient lies between minus one and plus one,
i.e., - 1 < r < + 1. If the value of r lies outside this range, it
indicates error in calculation.
1. The correlation coefficient remains constant in the
same measurement as the two variables.
2. The variance’s sign will always be the same as the
sign of the coefficient correlations.
3. The correlation coefficient will have a numerical
value ranging from -1 to 1, also known as the real number value.
4. The coefficient’s negative value indicates a strong
and negative association. If ‘r’ continues to approach -1, the relationship is
going almost towards the negative side.
5. A correlation coefficient is a pure number that is
unaffected by the units. When we add the same number to all the values of a
variable, it has no effect.
6. All the variables can be multiplied by a single
positive value. The correlation coefficient is unaffected by this. Because ‘r’
is a scale-invariant, as previously stated, it is unaffected by any unit.
7. Correlation is used to measure association, but it
does not imply causation. This means that if two variables are correlated, the
third variable may have an impact on them.
8. When ‘r’ reaches the side of + 1, it indicates a
strong and positive relationship. We can conclude that if the correlation
result is +1, the relationship is in a positive state.
9. When the coefficient of correlation approaches 0, it
indicates a weak correlation. We can determine that the association is weak
when ‘r’ is close to zero.
10. The correlation coefficient is risky because we don’t
know whether the participants are telling the truth or not.
11. When the two variables are swapped, the coefficient of
correlation remains unchanged.
Importance or Significance of Correlation
(1) Formation of Laws and Concepts: The study
of correlation shows the direction and degree of relationship between the
variables. This has helped the formation of various laws and concepts in
economic theory, such as, the law of demand and the concept of elasticity of
demand.
(2) Cause and Effect Relationship: Correlation
coefficient sometimes suggests cause and effect relationship between different
variables. This helps in understanding why certain variables behave the way
they behave.
(3)
Business Decisions: Correlation analysis facilitates business decisions because
the trend path of one variable may suggest the expected changes in the other.
Accordingly, the businessman may plan his business decisions for the future.
(4)
Policy Formulation: Correlation analysis also helps policy formulation. If the
Government finds a negative correlation between tax rate and tax collection, it
should pursue the policy of low tax rate. Because, low tax rate would lead to
high tax collection.
VIDEO DESCRIPTION (max 5,000 characters)
Properties of Correlation Coefficient, Importance or Significance of Correlation | Correlation | 11th Commerce | by @statomics11comm
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IMPORTANCE OR SIGNIFICANCE OF CORRELATION
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