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Unformatted text preview: Perfect positive correlation. We denote this as r = +1 Perfect positive
Correlation
r = +1 Perfect Negative
Correlation Y Y O
O X axis (r = −1) O
192 X axis
X 1. If all the plotted dots lie on a straight line falling from upper
left hand corner to lower right hand corner, there is a perfect
negative correlation between the two variables. In this case
the coefficient of correlation takes the value r = 1.
2. If the plotted points in the plane form a band and they show
a rising trend from the lower left hand corner to the upper
right hand corner the two variables are highly positively
correlated.
Highly Positive Highly Negative
Y Y O O X axis X axis 1. If the points fall in a narrow band from the upper left
hand corner to the lower right hand corner, there will be a
high degree of negative correlation.
2. If the plotted points in the plane are spread all over the
diagram there is no correlation between the two
variables.
No correlation
( r = 0) Y O
X
193 Merits:
1. It is a simplest and attractive method of finding the nature
of correlation between the two variables.
2. It is a nonmathematical method of studying correlation. It
is easy to understand.
3. It is not affected by extreme items.
4. It is the first step in finding out the relation between the two
variables.
5. We can have a rough idea at a glance whether it is a positive
correlation or negative correlation.
Demerits:
By this method we cannot get the exact degree or
correlation between the two variables.
Types of Correlation:
Correlation is classified into various types. The most
important ones are
i) Positive and negative.
ii) Linear and nonlinear.
iii) Partial and total.
iv) Simple and Multiple.
Positive and Negative Correlation:
It depends upon the direction of change of the variables. If
the two variables tend to move together in the same direction (ie)
an increase in the value of one variable is accompanied by an
increase in the value of the other, (or) a decrease in the value of one
variable is accompanied by a decrease in the value of other, then
the correlation is called positive or direct correlation. Price and
supply, height and weight,...
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This note was uploaded on 01/18/2014 for the course BUS 100 taught by Professor Moshiri during the Winter '08 term at UC Riverside.
 Winter '08
 Moshiri
 Business

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