If there are more than two variables but only two variables are considered keeping the other variables constant, then the correlation is said to be Partial Correlation Type III: Based upon the constancy of the ratio of change between the variables Correlation is divided into two types as linear correlation and Non-Linear correlation based upon the Constancy of the ratio of change between the variables. 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. Ex. Y= a + bx Non Linear: The correlation would 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 variables.
Ex. Y= a + bx Methods of Studying Correlation: The various methods of ascertaining whether two variables are correlated or not are: . Scatter diagram Method . Graphic Method .
Karl Pearson’s Co - efficient of correlation and . Method of Least Squares. - - Introduction to Statistical Methods and Econometrics Of these, the first two are based on the knowledge of diagram and graphs, whereas the others are mathematical methods. .
Scatter Diagram Method: Scatter diagram is a graph of observed plotted points where each point represents the values of X and Y as a coordinate. It portrays the relationship between these two variables graphically. Advantages of Scatter Diagram method ( ) It is very simple and non- mathematical method ( ) it is not influenced by the size of extreme item. ( ) It is the first step in resting the relationship between two variables.
Disadvantages of Scatter diagram method It cannot establish the exact degree of correlation between the variables, but provides direction of correlation and depicts it is high or low.