10 Example1: Given the following pairs of values: Capital employed (Crores of Rs.):1 2 3 4 5 7 8 Profit (Lakhs of Rs.): 3 5 4 7 9 8 10 1)Make a scatter diagram 2)Do you think that there is any correlation between profits and capital employed? Is it positive? Is it high or low? 9 11 12 11 12 14 Correlation between profits and Capital employed(Crores of Rs.)0246810121416051015Capital EmployedProfitProfit(Lakhs of Rs.)
Correlation 11 Karl Pearson’s Coefficient of CorrelationOf the several mathematical methods of measuring correlation, the Karl Pearson‟s method, popularly known as Pearsonian coefficient of correlation, is most widely used in practice. The coefficient of correlation is denoted by the symbol r. If the two variables under study are X and Y, the following formula suggested by Karl Pearson can be used for measuring the degree of relationship. 2222XYXYNrXYXYNN.