MBA 522 Correlation_Coefficient

# MBA 522 Correlation_Coefficient - Correlation Coefficient...

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Correlation Coefficient Correlation Coefficient, r, is a measure of the strength of linear relationship between two quantitative variables. It is an index, and is unit-less. It can take on only values between –1 and +1 (including –1 and +1). It is a measure of LINEAR relationship. Does not imply causation. Should NOT be interpreted as a percentage (if r=0.87, it does not mean that the two variables are 87% related). Scatterplots are graphical equivalent to r. Graph/plot showing the relationship between two quantitative variables. Look for: Patterns and deviations from a pattern Form, direction, strength, outliers Up/down/flat (up - positive association, down - negative association) Linear (straight line) or does it curve Is the data clustered or spread out How well does it follow a clear form (strength) Interpretation of magnitude: R values between 0 to approximately 0.3 (or between 0 to –3) are considered low correlation (i.e., low positive or low negative correlation, depending on the sign). R values between 0.3 to approximately 0.7 (or between –0.3 to –0.7) are considered moderate (i.e., moderate positive or moderate negative, depending on the sign). R values between 0.7 to approximately 0.99 (or between –0.7 to –0.99) are considered high ((i.e., high positive or high negative, depending on the sign). R value of +1 or –1 is considered perfect positive or perfect negative correlation. R value of zero implies no “linear” relationship. Keep in mind that you may calculate r to be zero for two variables, and you might erroneously conclude that they are not related. However, if you draw the scatter diagram, it might show a non-linear (curvilinear) relationship. Interpretation of Sign: If two variables have a negative r value, they are said to be negatively related. This means that as the values for one variable increases, the values for the other decrease or vice versa. If two variables are positively related (i.e., r value is positive), then the variables move in the same direction (as one increases the other one also increases, and vice versa). Does not imply causation:

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MBA 522 Correlation_Coefficient - Correlation Coefficient...

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