CORRELATION

BETWEEN
VARIABLES

Statistical correlation is a statistical technique which tells us if two variables are related. Correlation can
tell you something about the relationship between variables. It is used to understand:

1. whether the relationship is positive or negative

2. The strength of relationship.
Correlation is a powerful tool that provides these vital pieces of information.

Coefficient of Correlation
Statistical correlation is measured by what is called coefficient of correlation (r). Its numerical value
ranges from +1.0 to -1.0. It gives us an indication of the strength of relationship.
In general, r > 0 indicates positive relationship, r < 0 indicates negative relationship while r = 0 indicates
no relationship (or that the variables are independent and not related). Here r = +1.0 describes a perfect
positive correlation and r = -1.0 describes a perfect negative correlation.
Closer the coefficients are to +1.0 and -1.0, greater is the strength of the relationship between the
variables.
Value of r

Strength of relationship

-1.0 to -0.5 or 1.0 to 0.5

Strong

-0.5 to -0.3 or 0.3 to 0.5

Moderate

-0.3 to -0.1 or 0.1 to 0.3

Weak

-0.1 to 0.1

None or very weak

Correlation is only appropriate for examining the relationship between meaningful quantifiable data rather
than categorical data such as gender, favorite color etc.

Types
There are three types of correlations that are identified:
1. Positive correlation: Positive correlation between two variables is when an increase in one
variable leads to an increase in the other and a decrease in one leads to a decrease in the other.
For example, the amount of money that a person possesses might correlate positively with the
number of cars he owns.
2. Negative correlation: Negative correlation is when an increase in one variable leads to a
decrease in another and vice versa. For example, the level of education might correlate
negatively with crime. This means if by some way the education level is improved in a country, it
can lead to lower crime. Note that this doesn't mean that a lack of education causes crime. It
could be, for example, that both lack of education and crime have a common reason: poverty.
3. No correlation: Two variables are uncorrelated when a change in one doesn't lead to a change in
the other and vice versa. For example, among millionaires, happiness is found to be uncorrelated
to money. This means an increase in money doesn't lead to happiness.
A correlation coefficient is usually used during a correlational study. It varies between +1 and -1. A value
close to +1 indicates a strong positive correlation while a value close to -1 indicates strong negative
correlation. A value near zero shows that the variables are uncorrelated.

Example 1:

Two Contractors submitted their prices as shown at table

By using Excel Command

r = + 0.997 indicates a strong relation between their prices

Example 2:

r between Contractor A & Contractor C = + 1 indicates a coincided relation between their prices