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There are cases when price rise due to increased demand.
Sikkim Manipal University Page No. 202 Research Methodology Unit 11 (d) The correlation may be due to chance. For instance, a small sample
may show correlation between wages and productivity. That is, higher
wage leading to lower productivity. In real life it need not be true. Such
correlation is due to chance.
(e) There might be a situation of nonsense or spurious correlation between
two variables. For instance, relationship between number of divorces
and television exports may be correlated. There cannot be any
relationship between divorce and exports of television.
The above points make it clear that correlation is only a statistical
relationship and it does not necessarily signify a cause and effect
relationship between the variables.
Types of Correlation Analysis
Correlation can be: Positive or negative Linear or non-linear Simple, multiple or partial Positive and Negative Correlation
When values of two variables move in the same direction, correlation is said
to be positive. When prices rise, supply increases and when prices fall
supply decreases. In this case, an increase in the value of one variable on
an average, results in an increase in the value of other variable or decrease
in the value on one variable on an average results in the decrease in the
value of other variable.
If on the other hand, values of two variables move in the opposite direction,
correlation is said to be negative. When prices rise, demand decreases and
when prices fall demand increases. In this case, an increase in the value of Sikkim Manipal University Page No. 203 Research Methodology Unit 11 one variable on an average results in a decrease in the value of other
Linear and Non-Linear Correlation
When the change in one variable leads to a constant ratio of change in the
other variable, correlation is said to be linear. In case on linear correlation,
points of correlation plotted on a graph will give a straight line. Correlation is
said to be non-linear when t...
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This note was uploaded on 04/15/2010 for the course MBA mba taught by Professor Smu during the Spring '10 term at Manipal University.
- Spring '10