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Correlation:: XY X Y X X2 Y Y2

Correlation analysis is a statistical method used to determine the strength and direction of the relationship between two variables. The correlation coefficient, denoted by r, measures the strength of the linear relationship between variables on a scale from -1 to 1. A value closer to 1 indicates a stronger positive correlation, closer to -1 indicates a stronger negative correlation, and closer to 0 indicates no correlation. The formula for calculating the correlation coefficient involves summing the products of the differences of each variable from the mean. An example shows using correlation analysis to examine the relationship between advertising expenditure and sales data from a company, finding a positive correlation of 0.1425, indicating sales are positively correlated with increases in advertising spending.

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Priyansh Agrawal
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24 views

Correlation:: XY X Y X X2 Y Y2

Correlation analysis is a statistical method used to determine the strength and direction of the relationship between two variables. The correlation coefficient, denoted by r, measures the strength of the linear relationship between variables on a scale from -1 to 1. A value closer to 1 indicates a stronger positive correlation, closer to -1 indicates a stronger negative correlation, and closer to 0 indicates no correlation. The formula for calculating the correlation coefficient involves summing the products of the differences of each variable from the mean. An example shows using correlation analysis to examine the relationship between advertising expenditure and sales data from a company, finding a positive correlation of 0.1425, indicating sales are positively correlated with increases in advertising spending.

Uploaded by

Priyansh Agrawal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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CORRELATION:

Correlation is another most useful statistical method. These belongs to the most common
useful statistical tools to compare effects and performances of variables. Correlation
analysis is applied to independent factors: If X is increases, what will Y do. In
Regression analysis Changes in X results Changes in Y but Changes in Y do not result
in changes in X.

To discover whether there is a relationship between variables. To find out the direction
of the relationship-whether it is positive negative or zero. This measure varies from 0to1
and0to-1. The test statistic correlation coefficient measures the strength of the
relationship between the two variables. If positive sign is occurred then the relationship
is positive otherwise negative. The correlation is denoted by ‘r’ or ‘ p’.

N  XY   X Y

The calculation formula for, r =


(N  X 2  ( X )2 )
(N Y 2  (Y )2 )

Ex: 1) Find the relationship between the net profit and cash flow

2) What is relationship between sales persons and number of sales?

3) Relationship between price and supply, income and expenditure.

4)Advertising expenditure and sales.

In business correlation analysis enables the executive to estimates costs, sales price and
other variables on the basis of some other series with which these costs sales prices may
be functionally related.
Problem: The following are the monthly figures of advertising expenditure and sales of
a firm. It is generally found that advertising expenditure has its impact on sales. We now
check there is any relationship between advertising expenditure and sales

Month Jan Feb March April May

Advertising
50 60 70 90 120
expenditure

Sales in
1200 1500 1600 2000 2200
thousands

Solution:

Advertising Sales in
thousands
Month
expenditure
Y X2 Y2 XY
X
Jan 50 12 2500 144 600

Feb 60 15 3600 225 900

Mar 70 16 4900 256 1120

Apr 90 20 8100 400 1800

May 120 22 14400 484 2640

Total
 X =390 Y =85 X 2
=33500 Y 2
=1509 XY =7060
5(7060) - 390 *85
The correlation of r =
(5(33500) - (390)2 )(5(1509)
 (85)2 )
=2150/15080
Here we see the r= 0.1425

The correlation is positively correlated and we say the sales will depend by advertising
expenditure
Hence, we observe that the sales will increase by advertising expenditure because lot of
people see the television for relax nest in that time, they see some advertising.

Here we see the relationship of sales and advertising by the method correlation so we
precise the correlation plays a role to identify the relationship and then we give the best
conclusion for any type of problems. The statistical tool correlation plays an important role
in cause and effective relationship of variables in business research. Here the statistical
tool correlation plays an important role in business research.

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