Correlation ( Υ ) Introduction Correlation is a statistical device that helps to analyse the covariation of two or more variables. Sir Francis Galton, is responsible for the calculation of correlation coefficient. Types of Correlation Correlation is classified in several different ways. Three of the most important ways of classifying correlation are: Karl Pearson Types of Correlation Based on the direction of change of variables Based upon the number of variables studied Based upon the constancy of the ratio of change between the variables Positive Correlation Simple Correlation Linear Correlation Negative Correlation Multiple Correlation Partial Correlation Non-linear Correlation Type I: Based on the direction of change of variables Correlation is classified into two types as Positive correlation and Negative Correlation based on the direction of change of the variables.
- - Introduction to Statistical Methods and Econometrics Positive Correlation: The correlation is said to be positive if the values of two variables move in the same direction. Ex : If income and Expenditure of a Household may be increasing or decreasing simultaneously. If so, there is positive correlation. Ex.
Y= a + bx Negative Correlation: The Correlation is said to be negative when the values of variables move in the opposite directions. Ex. Y= a – bx Ex : Price and demand for a commodity move in the opposite direction. Type II: Based upon the number of variables studied.
There are three types based upon the number of variables studied as a) Simple Correlation b) Multiple Correlation c) Partial Correlation Simple Correlation: If only two variables are taken for study then it is said to be simple correlation. Multiple Correlations: If three or more than three variables are studied simultaneously, then it is termed as multiple correlation. Ex: Determinants of Quantity demanded Q d = f (P, Pc, Ps, t, y) Where Q d stands for Quantity demanded, f stands for function. P is the price of the goods, P c is the price of competitive goods P s is the price of substituting goods t is the taste and preference y is the income.
Partial Correlation: