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Additional Reading
For additional reading see Chapter 6 in Michael R. Middletons Data Analysis Using Excel, Duxbury Thompson Publishers, 2000. See also Chapter 4 section 7 of Keller and Warracks Statistics for Management and Economics. Fifth Edition, Duxbury Thompson Learning Publisher, 2000. Read any introductory statistics book about correlation.
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Objectives Independent and dependent variables Example Scatter plot Correlation coefficient Range of correlation coefficient Formula for correlation coefficient Example for correlation coefficient Possible relationships between variables
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Objectives
To learn the assumptions behind and the interpretation of correlation. To use Excel to calculate correlations.
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Purpose of Correlation
Correlation determines whether values of one variable are related to another.
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Example
Independent variable in this example is the number of hours studied. The grade the student receives is a dependent variable. The grade student receives depend upon the number of hours he or she will study. Are these two variables related?
Student Hours studied % Grade
82
B
C D
2
1 5
63
57 88
E
F
3
2
68
75
9
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Scatter Plot
The independent and dependent can be plotted on a graph called a scatter plot. By convention, the independent variable is plotted on the horizontal x-axis. The dependent variable is plotted on the vertical y-axis.
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60 40 20 0 0 1 2 3 4 5 6 7 Hours Studied
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The graph suggests a positive relationship between hours of studies and grades
Scatter Plot
100 80
Grade (%)
60 40 20 0 0 1 2 3 4 5 6 7 Hours Studied
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Correlation Coefficient
The correlation coefficient computed from the sample data measures the strength and direction of a relationship between two variables. The range of the correlation coefficient is. - 1 to + 1 and is identified by r.
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13
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Correlation = +1
Dependent variable
25 20 15 10 12 14 16 18 20 Independent variable
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Correlation = -1
Dependent variable
25 20 15 10 12 14 16 18 20 Independent variable
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Dependent variable
Correlation = 0
30 25 20 15 10 0 2 4 6 8 10 12 Independent variable
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Dependent variable
Correlation = 0
30 20 10 0 0 2 4 6 8 10 12 Independent variable
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Where n is the number of data pairs, x is the independent variable and y the dependent variable.
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The correlation coefficient suggests a strong positive relationship between age and blood pressure.
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22
23
Interpretation
The correlation is 0.9 There is a strong positive relationship between age and blood pressure
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Test of Correlation
Null hypothesis: correlation is zero Test statistic is t = r [(n-2)/(1-r2)]0.5 The statistic is distributed as Student t distribution with n-2 degrees of freedom Excel does not calculate this statistic and you can manually calculate it
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