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DMM-I
Session-11th

When something happens, we ask Why?

we want to know what cause the event. But why are we interested in what caused the event?

CORRELATION

knowing the causes provides understanding knowing causes empowers us to intervene These two tend to go together: Why do more calls produce better sales? learning the reason is more calls provides better understanding and a procedure for making better sales

The roots of appeal of causation lie in our doing

something to produce an effect:
We want to move a rock, so we push it.

A major logical fallacy with the people is that

people believes that correlations might be indicative of causation.

Correlations per se only allow you to predict:

Definition of Cause: Independent of our own action, a cause is something which brings about or increases the likelihood of an effect.

Causation tells you how to change the effect:

The correlation of frequent smoking with having cancer in 2 to 3 years time allows you to predict that if you engage in frequent smoking , you are more likely to have a cancer 2 to 3 years later. Knowing that frequent smoking causes (increases the likelihood of) having cancer in 2 to 3 years time allows you to take action to have or not have a cancer.

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Correlation
Causation means cause
& effect relation.

Correlation

If two variables vary in such a way that

movement in one are accompanied by movement in other, these variables are called cause and effect relationship. Causation always implies correlation but correlation does not necessarily implies causation.

Correlation denotes the interdependency among

the variables for correlating two phenomenon, it is essential that the two phenomenon should have cause-effect relationship,& if such relationship does not exist then the two phenomenon can not be correlated.

Dependent Variables(DVs) & Independent Variables(IVs)

How to find DVs & IVs

Relation Direction Origin Results

Types of Correlation Type I

Correlation
Positive Correlation Negative Correlation

Definition of DVs and IVs Examples of DVs and IVs

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Types of Correlation Type I

Positive Correlation: The correlation is said to be
positive correlation if the values of two variables changing with same direction. Ex. Pub. Exp. & sales, Height & weight.

Direction of the Correlation

Positive relationship Variables change in the
same direction. Indicated by sign; (+) or (-). E.g., As height increases, so does weight.
As X is increasing, Y is increasing As X is decreasing, Y is decreasing

Negative Correlation: The correlation is said to be

negative correlation when the values of variables change with opposite direction. Ex. Price & qty. demanded.

Negative relationship Variables change in

opposite directions.
As X is increasing, Y is decreasing As X is decreasing, Y is increasing

E.g., As TV time increases, grades decrease

More examples
Positive relationships water consumption and Stud y time and grades.
temperature.

Negative relationships: alcohol consumption and Price & quantity

demanded driving ability.

Types of Correlation Type II

Correlation Simple
Partial

Multiple
Total

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Types of Correlation Type II

Simple correlation: Under simple correlation problem
there are only two variables are studied.

Types of Correlation Type III

Multiple Correlation: Under Multiple Correlation three or

more than three variables are studied. Ex. Qd = f ( P,PC, PS, t, y )

Correlation
LINEAR NON LINEAR

Partial correlation: analysis recognizes more than two

variables but considers only two variables keeping the other constant.

Total correlation: is based on all the relevant variables,

which is normally not feasible.

Types of Correlation Type III

Linear correlation: Correlation is said to be
linear when the amount of change in one variable tends to bear a constant ratio to the amount of change in the other. The graph of the variables having a linear relationship will form a straight line. be non linear if the amount of change in one variable does not bear a constant ratio to the amount of change in the other variable.

Methods of Studying Correlation

Karl Pearsons Coefficient of

Scatter Diagram Method

Correlation

Non Linear correlation: The correlation would

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Scatter Diagram Method

A perfect positive correlation

Weight Weight of B Weight of A

Scatter Diagram is

a graph of observed plotted points where each points represents the values of X & Y as a coordinate. It portrays the relationship between these two variables graphically.

A linear relationship

Height of A

Height of B

Height

High Degree of positive correlation

Degree of correlation

Positive relationship
r = +.80

Moderate
Shoe Size

Positive Correlation
r = + 0.4

Weight

Height

Weight

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Degree of correlation

Degree of correlation

Perfect
TV watching per week

Negative Correlation
r = -1.0

Moderate Negative Correlation

r = -.80 TV watching per week

Exam score

Exam score

Degree of correlation

Degree of correlation

Weak negative Correlation

Shoe Size r = - 0.2

No Correlation (horizontal line)

r = 0.0 IQ

Weight

Height

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Degree of correlation (r)

r = +.80 r = +.60

Advantages of Scatter Diagram

Simple & Non Mathematical method Not influenced by the size of extreme
item

First step in investing

between two variables
r = +.40 r = +.20

the relationship

Number of Sales Calls and Copies Sold for 10 Salespeople

Disadvantage of scatter diagram

Sales Representative Tom Jeff Brian Greg Susan Carlos Rich Mike Mark Soni Mean Number of Sales calls 20 40 20 30 10 10 20 20 20 30 Number of copies sold 30 60 40 60 30 40 40 50 30 70

Can not determine the an exact degree of correlation

22

45

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Scatter Diagram Showing Sales Calls & Copies Sold

Mean (X)
80

Product Moment Correlation

The product moment correlation, r, summarizes the
strength of association between two metric (interval or ratio scaled) variables, say X and Y. It is an index used to determine whether a linear or straight-line relationship exists between X and Y. As it was originally proposed by Karl Pearson, it is also known as the Pearson correlation coefficient. It is also referred to as simple correlation, bivariate correlation, or merely the correlation coefficient.

70

IV I

Copies Sold (Y)

60

50

Mean(Y)
40

30

III
20 10

II
0 10 20 30 40 50

Sales Calls (X)

Assumptions of Pearsons Correlation Coefficient

Product Moment Correlation

From a sample of n observations, X and Y, the product moment correlation, r, can be calculated as:
r=
i

There is linear relationship between two variables,

i.e. when the two variables are plotted on a scatter diagram a straight line will be formed by the points.

(X i - X )(Y i - Y ) i =1 (X i - X ) (Y i - Y ) =1 =1
2 i n n 2

Division of the numerator and denominator by (n-1) gives

Cause and effect relation exists between different

forces operating on the item of the two variable series.
r=

i =1 i =1
=
n

(X i - X )(Y i - Y ) n-1

(X i - X )2 n-1

=1
i

(Y i - Y )2 n-1

Variables should be Interval scaled or ratio scaled

COV x y SxSy

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Procedure for computing the correlation coefficient

Explaining Attitude Toward the City of Residence

Respondent No Attitude Toward the City
1 2 3 4 5 6 7 6 9 8 3 10 4 5 2 11 9 10 2

Calculate the mean of the two series x &y Calculate the deviations x &y in two series from their
respective mean.

Duration of Residence
10 12 12 4 12 6 8 2 18 9 17 2

Importance Attached to Weather

3 11 4 1 11 1 7 4 8 10 8 5

Square each deviation of x &y then obtain the sum of

the squared deviation i.e.x2 & .y2

Multiply each deviation under x with each deviation under

y & obtain the product of xy.Then obtain the sum of the product of x , y i.e. xy

8 9 10 11 12

Substitute the value in the formula.

Product Moment Correlation

n

Product Moment Correlation

(X i - X ) i =1
2

The correlation coefficient may be calculated as follows: (10 + 12 + 12 + 4 + 12 + 6 + 8 + 2 + 18 + 9 + 17 + 2)/12 X = = 9.333

Y
n

= (6 + 9 + 8 + 3 + 10 + 4 + 5 + 2 + 11 + 9 + 10 + 2)/12 = 6.583 = (10 -9.33)(6-6.58) + (12-9.33)(9-6.58) + (12-9.33)(8-6.58) + (4-9.33)(3-6.58) + (12-9.33)(10-6.58) + (6-9.33)(4-6.58) + (8-9.33)(5-6.58) + (2-9.33) (2-6.58) + (18-9.33)(11-6.58) + (9-9.33)(9-6.58) + (17-9.33)(10-6.58) + (2-9.33)(2-6.58) = -0.3886 + 6.4614 + 3.7914 + 19.0814 + 9.1314 + 8.5914 + 2.1014 + 33.5714 + 38.3214 - 0.7986 + 26.2314 + 33.5714 = 179.6668

= (10-9.33)2 + (12-9.33)2 + (12-9.33)2 + (4-9.33)2 + (12-9.33)2 + (6-9.33)2 + (8-9.33)2 + (2-9.33)2 + (18-9.33)2 + (9-9.33)2 + (17-9.33)2 + (2-9.33)2 = 0.4489 + 7.1289 + 7.1289 + 28.4089 + 7.1289+ 11.0889 + 1.7689 + 53.7289 + 75.1689 + 0.1089 + 58.8289 + 53.7289 = 304.6668

(X i - X )(Y i - Y ) i =1

(Y i - Y ) =1
i

= (6-6.58)2 + (9-6.58)2 + (8-6.58)2 + (3-6.58)2 + (10-6.58)2+ (4-6.58)2 + (5-6.58)2 + (2-6.58)2 + (11-6.58)2 + (9-6.58)2 + (10-6.58)2 + (2-6.58)2 = 0.3364 + 5.8564 + 2.0164 + 12.8164 + 11.6964 + 6.6564 + 2.4964 + 20.9764 + 19.5364 + 5.8564 + 11.6964 + 20.9764 = 120.9168

Thus,

r=

179.6668 (304.6668) (120.9168)

= 0.9361