BUSINESS STATISTICS II MOUNT KENYA UNIVERSITY (MKU) NOTES PDF

CORRELATION AND REGRESSION

A Statistician collects information for variables, which describe the situation. A variable is a characteristics or attribute that can assume different values. That is Data are values, measurements or observations that the variables can assume. Variables whose values are
determined chance are called random variable.
A collection of data values forms a data set. Each value in the data set is called a data value or a datum.

1.1 WHAT IS CORRELATION?

In statistics, correlation is a measure of the strength of a linear relationship between two sets of numbers, i.e. if a change in one number is accompanied a change in the other. The range of the correlation coefficient is from -1 to +1. If there is a strong positive linear relationship between the variables, the value of r will be close +1.

1.2 PEARSON’S PRODUCT MOMENT COEFFICIENT OF CORRELATION r (PPMCC)
This provides a measure of the strength of association between two variables; one the dependent variable, the other the independent variable, r, can range from +1 i.e. perfect positive correlation where the variables change value in the same direction as each other, to -1 i.e. perfect negative correlation where y decreases linearly as x increases. There are several possible formulae but practical ones are: –

 

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