Scatter Diagram o o o o o o o o x x x x x x x x y y y y y y y y Perfect Positive Correlation High Degree of Positive Correlation High Degree of Negative Correlation No Correlation No Correlation Perfect Negative Correlation Low Degree of Positive Correlation Low Degree of Negative Correlation . Graphic method In this method, the individual values of two variables are plotted on the graph sheet and draw the curves of both the variables say x and y. If both X and Y are moving in the same direction either upward or downward, then the correlation is said to be positive. If the curves of X and Y move in the opposite direction; then the correlation is said to be negative.
- - Introduction to Statistical Methods and Econometrics Public vs Private Investments Financial year %year-on-year Source: Central Statistical Organisation Public Private - - - . Karl Pearson’s Coefficient of Correlation Karl Pearson’s Method is popularly known as Pearson’s coefficient of correlation denoted by the symbol ‘r’. The coefficient of correlation ‘r’ measures the degree of linear relationship between two variables say X and Y. The Formula for computing Karl Pearson’s Coefficient of correlation is: ) r = N ∑ XY − ( ∑ X) ( ∑ Y) N ∑ X − ( ∑ X) N ∑ Y − ( ∑ Y) ‘r’ is calculated by Direct Method without taking deviation of terms either from actual mean or assumed mean.
) r is calculated by taking the Deviation from actual mean. r = ∑xy ∑x ∑y where x= ( x - x̅ ), y = (y - y ) ) ‘r’ is calculated by taking assumed mean r = N ∑ dxdy − ( ∑ dx ) ( ∑ dy ) N ∑ dx − ( ∑ dx ) N ∑ dy − ( ∑ dy ) Where dx refers to deviations of x series from assumed mean A ( X - A ), dy refers to deviations of y series from an