METHODS OF FINDING DEGREE OF CORRELATION | ECONOMETRICS|L-19|

Correlation is a statistical calculation that indicates that two variables are parallelly related (which means that the variables change together at a constant rate). It is a simple and popularly used tool for defining relationships without delivering a statement concerning the cause and effect.

In simple words, correlation is a statistical calculation that estimates the point at which the two variables shift in relation to each other.

A positive and perfect correlation indicates that the coefficient correlation is exactly one. It indicates that when one variable moves upward or downward, the another variable moves in the same direction.

However, a negative and perfect correlation indicates that both the variables move in the opposite directions. When there is a zero correlation, it means that there is no relationship at all.

Different Types of Correlation

(A) MEANING OF CORRELATION 

Two variables can have some kind of relationship, i.e., change in one may cause a change in the other. Examples: Price and demand, height and weight, temperature and demand for soft drinks

If a change in the value of one variable causes a simultaneous change in the other variable in the same or opposite direction, then it is termed as correlation, or these variables are said to be correlated.

(B) TYPES OF CORRELATION There are three types of correlation:

Positive and negative correlation

Linear and non-linear correlation

Simple, multiple, and partial correlation