Advanced Business Quantitative Methods L4

Reinhold Kamati, PhD

April 11, 2019

Reinhold Kamati, PhD Advanced Business Quantitative Methods L4 April 11, 2019 1/7
Descriptive Statistics: Measures of Association between two
Variables

1 Measures of association between two variables

1 Covariance, Interpretation of the Covariance Correlation Coefficient &
Correlation Coefficient
2 Ethical Issues: Pitfalls Numerical Measures of location

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1. Measures of association between two variables
1 Covariance & Correlation
1 Thus far we have examined numerical methods used to summarize the
data for one variable at a time.
2 Often managers or decision makers are interested in the relationship
between two variables.
1 Advertising & Sales revenue
2 Training & Empoyees performance
2 Covariance & Correlation as descriptive measures of the relationship
between two variables.
1 The covariance measures the strength of the linear relationship between
two numerical variables (X and Y).
2 Sample covariance
P
(xi − x̄)(yi − ȳ )
cov (X , Y ) = sxy =
n−1
3 Sample coefficient of correlation
cov (X , Y ) sxy
r= =
sx sy sx sy
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1. Measures of association between two variables
1 To do: Calculate the Co-variance & correlation coefficent
1 We will use the data in the table below to calculate sxy & r .
xi yi
2
5 50
10 30
15 10
3 Table below provides the cost of a fast-food hamburger meal and the
cost of two movie tickets in 10 cities around the world.

4
5 Use Excel to calculate the covariance & correlation coefficient for these
data.
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1. Measures of association between two variables cont.../

1 Interpretation of variance & Correlation Coefficient

1 The covariance has a major flaw as a measure of the linear relationship
between two numerical variables.
2 Covariance can have any value, whatter is the sign attached the
number.
3 To better determine the relative strength of the relationship, you need
to compute the coefficient of correlation
2 Coefficient of Correlation
1 The coefficient of correlation measures the relative strength of a linear
relationship between two numerical variables.

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2. Ethical Issues: Pitfalls Numerical Measures of location

1 You have studied so far various statistics that measure the properties
of central tendency, variation, and shape.
1 What next? Next step is analysis and interpretation of the calculated
statistics.
2 Practise objective analysis
1 So make your analysis is objective
2 Objectivity in data analysis means reporting the most appropriate
numerical descriptive measures for a given data set.
3 You must avoid errors that may arise either in the objectivity of your
analysis or in the subjectivity of your interpretation.
3 Your interpretation will remain subjective.
1 Everyone sees the world from different perspectives.
2 Thus, because data interpretation is subjective, you must do it in a fair,
neutral, and clear manner.

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Ethical Issues....

1 Ethical issues are vitally important to all data analysis.

1 You should document both good and bad results.
2 Present your oral & written reports (results), in a fair, objective, and
neutral manner.
3 Unethical behavior occurs when
1 You willfully choose an inappropriate summary measure to distort the
facts in order to support a particular position.
2 You selectively fail to report pertinent findings because it would be
detrimental to the support of a particular position.

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